Team of four builds car auction platform

Goldman Sachs, Kelso, ValuAct and Parthenon will acquire ADESA for approximately and combine it with Insurance Auto Auctions, an automotive salvage auction company, in a $3.7bn transaction.

Four private equity firms—Kelso and Company, GS Capital Partners, ValueAct Capital and Parthenon Capital—have teamed up to take private ADESA, Inc., a wholesale vehicle auctions and used vehicle dealer floorplan financing company based in Carmel, Indiana, ADESA said in a statement. ADESA currently trades on the New York Stock Exchange under the ticker symbol “KAR”.

The announced deal has a value of roughly $2.5 billion (€1.9 billion).

ADESA facilitates the exchange of used and salvage vehicles through online and physical auctions and earns fees from both sellers and buyers, according to ADESA’s website.

The private equity firms will combine Insurance Auto Auctions, a provider of automotive salvage auction and claims processing services, with ADESA, the statement said. Insurance Auto Auctions is a portfolio company of Kelso, Parthenon and members of the senior management team. The total transaction, including the contribution of Insurance Auto Auctions and the assumption of approximately $700 million of debt is approximately $3.7 billion. 

Under the merger agreement, each outstanding share of ADESA common stock will be converted into the right to receive $27.85 per share in cash, a value which is 10 percent greater than ADESA’s closing price of $25.40 on December 21. It is also approximately 37 percent greater than its closing price of $20.31 on July 26, 2006, which is the date the company decided to explore its strategic options, the statement said.

The deal is expected to close in the first half of 2007.

New York-based Kelso & Company bought Insurance Auto Auctions in February 2005 for approximately $385 million. Founded in 1971, the firm has been in the business of recapitalizations since 1980.

GS Capital Partners is the global private equity arm of the investment bank Goldman Sachs. The firm is currently investing with its fifth fund, GS Capital Partners V, which is valued at approximately $8.5 million. The firm is reportedly in the process of raising its sixth fund. In conjuntion with Onex Partners, a publicly traded private equity fund based in Toronto, Canada, GS Capital bought Raytheon Aircraft Company, a manufacturer of business and special-mission aircraft, from its parent company, Waltham, Massachusetts-based Raytheon Company, for approximately $3.3 billion in December.

ValueAct Capital, a firm based in San Francisco and Boston, invests in companies that appear to be undervalued, the statement said. The firm bought MSD Ignition, a maker of ignitions and coils for racing cars, street cars, motorcycles and jetskis, from Gryphon Investors in April of 2005.

Parthenon Capital, based in Boston and San Francisco, focuses on middle market companies, primarily those in the business services, financial services and healthcare sectors, the statement said. The firm acquired American Wholesale Insurance Group, a North Carolina-based insurance wholesaler, for an undisclosed amount in September of 2005.