About Insurance Auto Auctions
Insurance Auto Auctions (NYSE: IAA) (NASDAQ: IAAI) specializes in automotive, specialty salvage services and provides solutions to process and sell total-loss and recovered theft vehicles. IAA provides a range of services to insurers, fleet and rental companies, rebuilders, charity organizations, and financing companies that reduce the cycle time of selling a vehicle. The company was founded in 1982 and is based in Westchester, Illinois.
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Latest Insurance Auto Auctions News
Jun 7, 2019
KAR Auctions Services To Spin-Off Insurance Auto Auctions on June 28 © 2017 Bloomberg Finance LP On June 5, 2019, KAR Auctions Services (NYSE: KAR, $58.92, Market Capitalization $7.9 billion), announced that its Board has approved the separation of its salvage auction business through a distribution of the outstanding shares of common stock of its wholly-owned subsidiary, IAA Spinco Inc. (to be renamed IAA, Inc.) (“IAA”), to KAR stockholders on a pro-rata basis. The Company also provided more details regarding the spin-off . Each KAR shareholder will receive one ordinary share of IAA for every one ordinary share of KAR. IAA will not issue fractional shares of its common stock in the distribution. The record date for the distribution for common stockholders is June 18. KAR expects that the ‘when-issued’ public trading market for IAA ordinary shares to begin on the NYSE on or about 6/17 and will continue through the close of trading on the day prior to the distribution date, i.e., 6/28. The ‘regular-way’ trading of IAA ordinary shares is expected to begin on the NYSE on 6/28. Beginning on or about 6/17, till the distribution date, KAR shares will trade in two ways: either with or without the right to a distribution of IAA ordinary shares. Ordinary shares will continue to trade on the NYSE on a ‘regular-way’ basis under the symbol “KAR” through the close of trading on the day prior to the distribution date. KAR shares will also trade “ex-distribution” (that is, without the right to receive shares of IAA common stock in the distribution) beginning on or about June 17, 2019, and continuing through the close of trading on the day prior to the distribution date. KAR Auctions Services and Price Performance Spin-Off Research Spin-Off Research Valuation and Recommendation We value KAR Auction Services (KAR) using 2020e EV/EBITDA methodology by assessing KAR (Stub) and IAA (Spin-Off ) separately. Our average intrinsic value of $32.50 per share (Previously: $31.00) for KAR (Stub) is based on 2020e EV/EBITDA multiple of 9.5x. Our average fair value estimate for IAA (Spin-Off ) stands at $33.50 (Previously: $33.00) per share is based on 2020e EV/EBITDA multiple of 13.5x (Previously: 13.2x). We arrive at a target price of $66.00 per share (Previously: $64.00) for KAR Auctions, which implies a potential upside of 12.0% from the current market price of $58.92 as of 6/5. With a dividend yield of c2.5%, the total return to shareholders works out to approx 15%. Factoring in the potential upside and its growth prospects, we remain constructive on the stock and maintain our ‘Buy’ rating. Key Data Key Takeaways from Latest Company Presentations On June 5, 2019, the Company also provided a slides update (Presentations) for both RemainCo and IAA. In the case of RemainCo, the company has guided for 2019 Adjusted EBITDA in the range of $530 to $550 and 2019 adjusted EPS in the range of $1.24 to $1.34. IAA provided a 5-year financial outlook with revenue growth of 5-7% on an organic basis with upside from M&A and ancillary services. Similarly, the Adjusted EBITDA growth is expected to be in the range of 6%-8% on an organic basis with upside from margin expansion and M&A. In case of IAA, the total net leverage is expected to be ~3.2x on a pro forma basis. IAA is also expected to hold roadshows in the week of June 10/June 17. 1Q19 Result Summary On May 7, 2019, KAR reported 1Q19 results with operating adj. EPS of $0.70 as compared to consensus estimate of $0.77 primarily due to lower profitability in the ADESA segment. In 1Q19, the company reported revenue of $1,046.8 million as compared with revenue of $950.5 million for the first quarter of 2018, an increase of 10%. Distribution of IAA shares to KAR shareholders KAR shareholders will receive one ordinary share of IAA for every one ordinary share of KAR held as of the record date. KAR Auctions Services will distribute all of the outstanding shares of IAA Inc common stock on a pro-rata basis to holders of KAR common stock. KAR shareholders will receive cash in lieu of any fractional shares of IAA common stock. Organization Structure A] KAR Auctions (Stub) KAR Auctions (Stub) provides used car auctions for dealers and fi nancial institutions under its ADESA business and also floorplan financing (AFC). We believe KAR Auctions (Stub) should see accelerating volume growth and margin improvement as it benefi ts from attractive auto auction industry tailwinds and higher operating leverage. We are expecting annual volume growth in the range of 5-6% over the next two years with a cumulative EBITDA margin expansion of 50 bps in the same period. EV/EBITDA Valuation: We value KAR Auctions at $32.50 (previously $31.00) per share based on 2020e EV/EBITDA multiple of 9.5x. This multiple is broadly in line with KAR’s historical multiples range. Manheim, which is KAR’s closest competitor, is privately held, and Carvana is loss-making at the EBITDA level, and hence KAR’s peers trading multiples are not available. We expect 2020 EBITDA of $575.0 million for KAR (Stub) factoring in possible dis-synergies and incremental higher SG&A expenses, net of corporate overheads. EV-EBITDA KAR Auction Services (Stub) Spin-Off Research B] IAA (Spin-Off ) KAR provides salvage/totaled car auctions primarily for insurance companies under its IAA business. IAA is primed to benefit from structural tailwinds such as increasing Car Parc, rising vehicle age, and higher mileage, which supports increased volumes through IAA’s marketplaces. IAA should also enjoy margin improvement as it benefits from higher volumes and greater operating leverage. We are expecting an annual volume growth of 7% over the next two years with a cumulative EBITDA margin expansion of 100bps in the same period. EV/EBITDA Valuation: We value IAA at $33.50 (Previously: $33.00) per share by applying 2020e EV/EBITDA multiple of 13.5x (Previously: 13.2x). The assigned multiple is at ~29% discount to Copart’s multiple (19.0x) factoring in diff erential growth prospects and Copart’s position in faster-growing international markets. We expect 2020 EBITDA of $425.0 million for IAA factoring in possible dissynergies and incremental higher SG&A expenses and spin-off related costs of $8-10 million, net of corporate overheads. EV-EBITDA IAA (Spin-Off) C] Consolidated Valuation: Our consolidated target price for KAR Auctions stands at $66.00 (previously $64.00) per share, implying a potential upside of 12.0% from the current market price of $58.92 as on 6/5. Given the potential upside, a dividend yield of c2.5%, and its growth prospects, we remain constructive on the stock and maintain our ‘Buy’ rating. Consolidated Valuation KAR Auctions KAR Auction Services, Inc. (Parent) KAR Auction Services (NYSE: KAR) provides sellers and buyers across the global wholesale used vehicle industry with innovative, technology-driven remarketing solutions. KAR’s unique end-to -end platform supports whole car, salvage, financing, logistics and other ancillary and related services, including the sale of more than 5.5 million units through auctions. Headquartered in Carmel, Indiana, KAR has approximately 20,000 employees across the United States, Canada, Mexico, and the United Kingdom. KAR operates as three reportable business segments: ADESA Auctions, Insurance Auto Auctions, Inc (IAA) and Automotive Finance Corporation (AFC) and these divisions accounted for 56%, 35% and 9% of revenues, respectively. ADESA has the second largest used vehicle auction network in North America. AFC is a leading provider of floorplan financing to independent used vehicle dealers, and this financing is provided through 130 locations throughout the United States and Canada as of December 31, 2018. Total revenue for FY18 was $3.76 billion. IAA Inc (Spin-Off ) IAA Inc., a wholly-owned subsidiary of KAR Auction Services, includes North American salvage vehicle operations and HBC Vehicle Services Limited. As one of the leading providers of total loss solutions and salvage vehicle auctions, Company operates as IAA in the United States and Impact Auto Auctions in Canada. As a preparation for the spin-off , IAA was incorporated in Delaware on June 19, 2018. At December 31, 2018, properties utilized by the IAA business segment include 186 salvage vehicle auction facilities in the United States and Canada, most of which are leased. IAA also includes HBC, which operates from 11 locations in the United Kingdom. The IAA North American properties are used for auction and storage purposes consisting on average of approximately 30 acres of land per site. The salvage auction business specializes in providing services such as inbound transportation logistics, inspections, evaluations, salvage recovery services, titling, and settlement administrative services. Fees for services are earned from both sellers and buyers of salvage vehicles. IAA reported total revenue of $1.32 billion (35% of KAR revenues) in FY18 with approximately 3,300 employees across 186 locations. Joe Cornell CFA , publisher of Spin-Off Research, an independent research provider. For more information about spin-offs, go to Spin-Off Research website at spinoffresearch.com
Insurance Auto Auctions Frequently Asked Questions (FAQ)
When was Insurance Auto Auctions founded?
Insurance Auto Auctions was founded in 1982.
Where is Insurance Auto Auctions's headquarters?
Insurance Auto Auctions's headquarters is located at 2 Westbrook Corporate Center, Westchester.
What is Insurance Auto Auctions's latest funding round?
Insurance Auto Auctions's latest funding round is Acq - Pending.
How much did Insurance Auto Auctions raise?
Insurance Auto Auctions raised a total of $480K.
Who are the investors of Insurance Auto Auctions?
Investors of Insurance Auto Auctions include Ritchie Bros. Auctioneers, Monument Capital Partners and Crane Street Capital.
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