ADESA Acquisition: Key Details, Impact, and What Comes Next

Carvana's acquisition of ADESA U.S.'s physical auction business marks a significant milestone in the automotive industry. Valued at $2.2 billion, this strategic move includes 56 locations and aims to enhance Carvana's operational efficiency and market reach. The integration of ADESA's facilities is expected to bolster Carvana's production capacity and improve service offerings, positioning it as a formidable player in both retail and wholesale markets.

What Is ADESA?

Founded in 1989, ADESA specializes in vehicle auction services, offering both live and digital auctions. Its core products include the ADESA Clear digital auction platform, the CarValue™ wholesale valuation guide, and the ADESA Assurance 21-day return guarantee. Unique selling points include the transparency and efficiency of ADESA Clear, machine learning-driven price predictions from CarValue™, and a comprehensive network of auction locations across the U.S., providing extensive market reach and convenience for buyers and sellers.

Who Acquired ADESA?

Carvana operates as an online platform for buying and financing used cars, offering the convenience of at-home delivery. Key services include a wide variety of used car sales, financing options, a Vehicle Value Tracker, and personalized insurance coverage. Positioned as an innovative solution in the used car market, Carvana leverages online tools and delivery services to differentiate itself from traditional dealerships, making car buying more accessible and user-friendly.

When Was ADESA Acquired?

Carvana announced its acquisition of ADESA U.S.'s physical auction business on February 24, 2022, and the deal was finalized on May 10, 2022. This acquisition came at a time when the automotive industry was experiencing a slowdown. Despite these challenges, Carvana aimed to leverage ADESA's extensive infrastructure to enhance its operational capacity and customer offerings, positioning itself for future growth as the market rebounds.

Why Was ADESA Acquired?

• Market Expansion: Carvana's acquisition of ADESA U.S. significantly broadens its market presence. With 56 new locations, 78% of the U.S. population will be within 100 miles of a Carvana inspection and reconditioning center. This expansion allows Carvana to offer a wider selection of vehicles and faster delivery times, enhancing its operational footprint and capacity for growth.
• Technology Integration: The acquisition enables Carvana to integrate its advanced e-commerce platform with ADESA's physical auction operations. This includes the development of a proprietary digital auction platform, ADESA Clear, and the use of Carvana's CARLI software in reconditioning processes. These technological advancements aim to improve efficiency and customer experience by leveraging combined infrastructure and expertise.
• Competitive Advantage: The acquisition strengthens Carvana's competitive position by increasing its production capacity from 2 million to over 3 million units annually. The integration of Carvana's retail capabilities with ADESA's physical auction operations enhances operational efficiency, reduces delivery times, and improves customer experiences. Additionally, the consolidation of overlapping market facilities results in significant cost savings, further solidifying Carvana's path to becoming the largest and most profitable automotive retailer.

Acquisition Terms

• Acquisition Price: $2.2 billion
• Payment Method: Cash
• Key Conditions or Agreements:
  • Carvana will operate ADESA U.S.'s auction business under the leadership of ADESA President John Hammer.
  • The acquisition includes 56 ADESA U.S. locations, totaling approximately 6.5 million square feet of buildings on more than 4,000 acres.
  • Carvana aims to use the acquisition to improve customer experiences and achieve significant and sustainable efficiencies and unit economic improvements.
  • The transition for ADESA U.S. physical auction customers is intended to be seamless.
  • Carvana was advised by Citi and J.P. Morgan Securities LLC as financial advisors and Kirkland & Ellis LLP as legal counsel.
  • An additional $1 billion will be invested in future real estate improvements across the 56 sites.
  • The acquisition is subject to customary closing conditions.
  • Carvana has received committed financing of up to $3.275 billion from JPMorgan Chase Bank N.A. and Citi to fund the purchase price and improvements.

Impact on ADESA

The acquisition of ADESA by Carvana has led to significant changes in operations and management. Carvana continues to operate ADESA's auction business under the leadership of ADESA President John Hammer. The integration has seen the transition of ADESA sites into Carvana Inspection and Reconditioning Centers (IRCs), enhancing operational workflows and technology systems. Additionally, Carvana has consolidated over 55 overlapping market facilities, resulting in annualized rent and facilities expense savings of over $30 million. This strategic move aims to streamline operations and improve overall efficiency.

In terms of product offerings and services, the acquisition has broadened Carvana's vehicle selection and expedited delivery times. The development of the ADESA Clear digital auction platform has provided a more efficient and transparent experience for wholesale auction buyers and sellers. Employee reactions have not been explicitly detailed, but the rapid progress and collaboration in a challenging environment have been highlighted. Customer reactions, while not specifically mentioned, are implied to be positive due to improved customer experiences and faster fulfillment times. For founders considering business transitions, tools like Sunset can assist in managing such processes compliantly and efficiently.