Exclusive: KKR, Apollo, CD&R mull KAR buyout - sources

NEW YORK Wed Sep 12, 2012 5:20pm BST

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NEW YORK (Reuters) - KKR & Co LP, Apollo Global Management LLC and Clayton Dubilier & Rice LLC are among a handful of private equity firms considering a buyout of KAR Auction Services Inc, according to several people familiar with the matter, in a deal that could top $4 billion.

Reuters reported in August that the vehicle auction company, which has a market value of $2.5 billion and debt of about $1.8 billion, had held exploratory talks with buyout firms about a potential acquisition.

KAR is in the early stages of buyout discussions after hiring investment bank Evercore Partners to solicit offers, and there is no guarantee of a deal, the sources said.

Kelso & Co, Goldman Sachs Capital Partners, ValueAct Capital LLC and Parthenon Capital LLC collectively own about 78 percent of KAR.

KAR declined to comment on Wednesday, while its main shareholders did not respond to a request for comment. KKR, Apollo and Clayton Dubilier & Rice also declined to comment.

Carmel, Indiana-based KAR, through its used-car wholesale auctions arm ADESA Inc, is No. 2 in U.S. used-car wholesale auctions behind Cox Enterprises Inc's Manheim unit, according to Standard & Poor's.

It has become increasingly difficult for a private equity buyer to make the leveraged finance math work since KAR shares rallied on buyout expectations, according to two of the sources. The stock is up more than 10 percent since August 22, when Reuters broke news of a potential sale.

KAR posted earnings of $487.2 million for 2011 before interest, tax, depreciation and amortization (EBITDA), and is expected to post EBITDA of more than $500 million in 2012, according to Reuters estimates.

"Using an eight to ten times EBITDA range, KAR's value could be $16-$25 per share on 2013 estimates - we see lower end," Barclays analysts wrote in a note on August 23. KAR shares were up 2.3 percent at $19.04 Wednesday morning in New York.

No strategic bidders were likely to show up, given the duopolies in the used-car wholesale and salvage auction markets, Barclays analysts added. KAR's ADESA and Manheim together have an estimated 70 percent share of the U.S. used-car wholesale auction market, according to Standard & Poor's.

KAR's efforts to explore a sale underscore the robust appetite for secondary buyouts - sales from one private equity firm to another - as the industry is flush with capital looking to be put to work.

KAR was taken private in 2007 in a $3.7 billion leveraged buyout. The buyout firms then relisted in the company in 2009, raising $332 million.

(Reporting by Greg Roumeliotis and Soyoung Kim in New York; Editing by Jeffrey Benkoe and John Wallace)

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