KAR Holdings plans for a 400 Million IPO
KAR Holdings, the 2nd largest auto auction service provider, after Copart, announced its plan of an IPO of $400 million to pay back debt and termination fees to equity sponsors. Standard & Poor’s who gives the company a corporate credit rating of a B-, notes that the company faces competition and has limited pricing power with customers such as bank and insurance companies. Although it’s not all bad news for KAR.
KAR Holdings’ primary income comes from auction fees for clean title and salvage vehicles. From 2004 to 2008, the number of vehicles sold at auction in the U.S. was around 9.4 to 9.7 million and the economic downturn does not appear to have affected this number. This is good news for KAR and its potential investors.
In 2009 so far, KAR reported an adjusted income of 371.8 million from revenue sources such as auction fees, inspection fees, storage fees and titling. KAR is especially enticing to investors because of their low capital requirements and high cash flow.
This deal is important to watch, especially for Copart, their primary competition. We will wait to see if the influx of cash stirs the salvage auction pot.
