Carmel-based KAR Auction Services Inc. isn’t commenting on a report by Reuters that it is talking with private equity firms about taking the company private for the third time in its 30-year history.
Private equity firms including Kelso & Co. and Goldman Sachs Capital Partners still own about 74 percent of the nation’s second-largest used vehicle auction chain.
Publicly traded KAR’s principal businesses are used-car auction company Adesa Inc., salvage-vehicle auction firm Insurance Auto Auctions Inc. and Automotive Finance Corp., which helps dealers finance vehicle purchases.
KAR has a market value of $2.3 billion. It posted profit of $72.2 million on $1.9 billion in revenue in 2011.
On Wednesday, KAR shares jumped to $18.36, their highest since May, after Reuters reported the company may be contemplating a leveraged buyout, and then fell. Shares were trading at $17.18 at midday Friday, up 6 cents on the day.
Reuters, citing sources close to the discussion, said Kelso & Co. and KAR’s other chief equity holders had reached out to other buyout firms to discuss a sale.
Kelso, Goldman Sachs Capital Partners, ValueAct Capital and Parthenon Capital took KAR private in 2007.
The auto auction industry has struggled in recent years with the economic downturn that dashed new car sales. That meant fewer new cars coming off lease to auction.
KAR shares peaked just above $20 in mid-2011.
Existing private equity holdings might be figuring,”Hey, let’s get our money out” now, said Mark Foster, chief investment officer at Columbus-based Kirr Marbach & Co.
The expectation of higher capital gains taxes next year has been driving such deal talk, as well, he noted.
Fundamentally, as a public company, “it’s not like they [KAR] need capital” right now, Foster said.
KAR might not fetch as much these days as before, according to a report issued Thursday by Barclays Capital.
Historical merger-and-acquisition multiples in the auto auction industry have been in the range of nine to 10 times earnings before interest, taxes, depreciation and amortization, said Barclays. Private equity “is unlikely to pay similar valuation for auto auctions today given the declining volumes in the overall industry,” the investment firm said.
At a more reasonable eight to 10 times EBITDA, KAR’s value is more like $16 to $25 a share, and “we see lower end,” Barclay's said.
Barclays was pessimistic KAR would find bidders from within the industry because big players already have a sizeable presence in the respective businesses, and because of antitrust issues.
KAR predecessor ADESA first went public in 1992. Three years later it was snapped up by the parent of Minnesota Power & Light, known as ALLETE.
In 2004, ALLETE spun off the remaining shares to the public. The company was taken private again in 2007 when KAR was formed by Kelso and the other equity partners.
They took KAR public in 2009 at about $12 a share, raising $313 million.
Atlanta-based Manheim Inc. is the only auto auction company bigger than KAR by volume of trade.