Adesa Proposed IPO Yet Another Positive for the Auto Biz

First, it was the Cash for Clunkers program. Then, it was some heartening car-sale numbers. Now, it is Adesa’s planned $400 million initial public offering.

Things are looking up for the auto industry.

Adesa’s parent Kar Holdings Inc. filed for an IPO yesterday. The company did not set an offering date.

In the filing, which you can view here, Kar indicated that stability in the remarketing market was one of the reasons for its offering:

During the period of 2004 through 2008, vehicles sold at whole car auctions in North America ranged from 9.4 million to 9.7 million vehicles per year, and we expect this stability to continue. This stability is primarily driven by the consistent population of cars on the road, as opposed to being dependent on the more volatile new car build rate. Positive trends which should influence future retail demand for used vehicles include increases in the number of households with more than one vehicle, improvements by manufacturers that have extended vehicle lifespan and the affordability of used vehicles relative to new vehicles.

Kar claims to be the nation’s second-largest vehicle auction house behind Manheim. According to Kar, Adesa in North America maintains an estimated marketshares of more than 21% and 35% in the whole car and salvage auction markets, respectively. Adesa owns 62 whole car and 152 salvage auction locations in North America.

From 2004 through 2008, Kar grew its whole car and salvage revenue per vehicle at compound annual growth rates of 7.1% and 4.7%, respectively. That said, it’s earnings before interest depreciation and amortization have fallen over the last couple of years to $212.2 million in the six months ended June 30 from $233.9 million in the first six months of 2008 and $405.2 million in 2007. On an operating basis, the company is barely profitable.

Kar generated $881.6 million of revenue in the first six months of this year.

Kar is currently owned by a quartet of private equity firms: Kelso & Company, GS Capital Partners (a Goldman Sachs & Co. unit), ValueAct Capital, and Parthenon Capital. The firms purchased Kar in 2007.

This article was originally posted on our new sister site Inside Remarketing.