Carmel-based KAR Global is expanding the type of wholesale digital auto auctions it offers as well as the technology at its disposal with its $425 million acquisition of BacklotCars Inc., a rapidly growing Kansas City, Missouri-based firm that uses artificial intelligence and machine learning to provide dealers with personalized recommendations for purchases.
KAR Global Executive Vice President and Chief Financial Officer Eric Loughmiller said during a Tuesday call with investors that the companies had signed a purchase agreement and that KAR would complete its acquisition of BacklotCars by the end of the year, pending regulatory approvals. KAR’s stock price closed at $17.21 Tuesday, down 2.5% for the day.
Loughmiller said BacklotCars’ 24/7 “bid-ask” auctions—which last from one to three days—will complement the live auctions already taking place on KAR’s TradeRev application.
“It takes the pressure off of a buyer having to be on his phone at the right time to make sure he gets the car,” Loughmiller said.
Founded in 2015, BacklotCars operates in 46 states—including some markets where KAR does not have a presence. The privately held firm has raised $38 million in venture capital, including an $8 million Series A round that closed in December 2018 and a $25 million Series B round that closed in April 2019.
The company uses artificial intelligence and machine learning to provide dealers with personalized vehicle recommendations. It also provides vehicle inspections from licensed mechanics, product transportation and inventory finance services.
Loughmiller declined to say how many vehicle sales BacklotCars facilitated last year, but said it was comparable to the roughly 158,000 vehicles sold through TradeRev.
According to Loughmiller, BacklotCars approached KAR and that the wholesale auction giant agreed to the purchase for several reasons. He said BacklotCars has an efficient capital model, minimal losses, large investments in its vehicle inspection unit and a combination of inside and outside sales.
Loughmiller said BacklotCars “is currently operating at a modest loss, but it’s very close to break-even and the path to profitability is clear.”
KAR plans to maintain BacklotCars’ headquarters in Kansas City and is allocating $20 million of the $425 million purchase price to retain the company’s four co-founders.
“KAR Global is the most innovative and progressive digital remarketing company in the world, and their entrepreneurial roots and culture are a great match for BacklotCars,” Justin Davis, co-founder and CEO of BacklotCars, said in a statement. “We’re excited to expose Backlot sellers’ inventory to KAR’s active buyer base while expanding buyer access to quality wholesale inventory beyond their respective local markets.”
KAR Global operates nearly 75 auction sites across North America. This spring, the company turned to 100% online sales in response to the COVID-19 pandemic. In June, the company reported that its second-quarter revenue had plummeted 42% from second quarter a year earlier and that it had laid off more than 3,000 of its 15,000 workers.
But sales were ticking up in June, when it sold 8% more cars than in June 2019.
“We have pivoted our business model following the COVID-19 disruption to be less labor intensive in all of our marketplaces,” Loughmiller said. “I am confident that the combination of BacklotCars—with ADESA and TradeRev—will accelerate our growth in the dealer consignment space.”