Shares of KAR Auction Services (KAR) are up more than 65% after used-car seller Carvana (CVNA) agreed to buy KAR’s physical used-vehicle business for $2.2 billion U.S.
Carvana will pay cash for KAR’s Adesa U.S. subsidiary, the nation’s second-largest wholesale vehicle auction, the companies said in a written statement.
Adesa operates 56 physical locations and processed more than one million transactions last year, generating more than $800 million U.S. in revenue.
Shares of Carmel, Indiana-based KAR jumped as much as 70% to $23.30 U.S. per share following release of the news after the close of regular trading. Carvana’s stock fell 10% to $113 a share.
Phoenix-based Carvana, one of the two largest online car marketplaces, said the purchase has the potential to expand its sales capacity to more than three million units a year. Carvana said it will keep the auction business running under the Adesa name and with the same senior managers in place.
Carvana is one of the rare companies that benefited during the pandemic as tight supplies of new automobiles raised the price of used vehicles. Its stock soared from about $30 U.S. a share in mid-March 2020 to more than $370 in August of last year.
During the pandemic, the company made moves to smooth out a system that delivers cars directly to consumer driveways and tap into a market of buyers who were sheltering in place at home.
Vehicles can be delivered directly to Carvana customers or picked up at one of the company’s so-called “car vending machines,” which are towering glass structures in which each vehicle has its own bay.