KAR Global sells ADESA auction business to Carvana in $2.2B deal

On Thursday, KAR Global agreed to terms of a deal that sees all ADESA auction operations and businesses in the US transfer to Carvana. The deal is worth $2.2 billion and is a fully cash transaction. While all American locations are being sold, KAR Global retains its ADESA businesses in Canada, the UK, and Europe along with other key operations.

The transaction gives a cash infusion for KAR to clear debt off their balance sheet and unlocks the potential for growth among other business sources. KAR Global will continue to operate their OPENLANE online off-lease remarketing platform, US-based BacklotCars and CARWAVE dealer-to-dealer trade-in auctions, and TradeRev in Canada.

KAR Global CEO Peter Kelley said, “This transaction will enable a leaner, more nimble operating model and faster long-term growth rate at KAR.  We believe the transaction will reduce our 2022 Adjusted EBITDA by approximately $100 million on an annual basis — net of the contribution from the commercial agreement entered into with Carvana as part of this transaction. However, we will reduce our headcount by approximately 50% while also paying down the majority of our balance sheet debt. We expect these savings, when combined with our investments and our focus on higher growth platforms, will deliver higher revenue and Adjusted EBITDA growth rates, as well as higher gross profit and Adjusted EBITDA margins.”

In a press release, Carvana founder and CEO Ernie Garcia assured that the auction company will continue under the ADESA brand. He said, “We are thrilled to welcome ADESA U.S. to the Carvana family. Together with Carvana’s existing operations, ADESA U.S.’s nationwide infrastructure network and robust, highly profitable business will accelerate Carvana’s progress toward becoming the largest and most profitable automotive retailer.

“Over time, we will leverage our combined infrastructure and complementary expertise to deliver even better selection, better value, and faster delivery times to our retail customers while simultaneously raising the bar and providing more access and better experiences to our wholesale customers.”

As a used car seller, it also positions Carvana to take a bigger bite out of the used car market on the supply side, not to mention bolster the retail side.

KAR Global shifts focus to digital-first

In large part, the deal with Carvana shifts KAR’s business model from the physical auction to nearly 100% online.

Kelly remarked, “KAR has always been a leader in the digital transformation of remarketing, and this transaction firmly positions us as the premier digital marketplace provider for wholesale used vehicles. While off-premises sales have increased over the past decade and represent over 50% of our vehicle sales today, we believe we are still in the early stages of this industry evolution, and the trends are rapidly gaining momentum. Digital marketplaces provide low-cost, highly efficient venues for our sellers and buyers to transact, and our leading digital brands, platforms, and technology position us well to grow as digital penetration increases. This transaction will allow us to focus our investments and energy on those higher growths, higher-margin digital marketplaces and on delivering the most strategic solutions to our customers. By simplifying our business, we are better positioned to lead and win in the fastest-growing segments of this industry.”

KAR Auction Services announced 2021 financial results on Feb 16, showing a net income of $66.5 million compared with just $0.5 million a year earlier. The company showed strong growth in ADESA, CARWAVE, and BacklotCars platforms year over year.

Carvana reported their 2021 financials on Thursday last week. With more than 425,000 units sold and total revenue of $12.8 billion, Carvana’s numbers reflect a massive uptick in business among retailing used cars