KAR leader Hallett ‘extremely happy’ with spinoff of IAA business unit

Jim Hallett, CEO and chairman of Carmel-based KAR Auction Services Inc., has had a few days to reflect on the now-completed spinoff of his company's salvage auction subsidiary into a separate public firm. And, so far, the results have more than met expectations, he said.

The separation was completed Friday, when KAR's Insurance Auto Auctions unit officially became IAA Inc. and its stock began trading on the New York Stock Exchange under the ticker symbol IAA.

The split of the two companies simplified what Hallett had previously described as “a very complex business model.”

As an independent company, IAA will remain based in Westchester, Illinois, a Chicago suburb, and will continue to focus on the salvage vehicle marketplace, serving insurers and buyers including dealers, recyclers and metal-scrapping companies.

IAA, which has 3,600 employees, accounted for about 35 percent of KAR’s total revenue in 2018, or about $1.32 billion.

KAR remains headquartered in Carmel, where it has more than 1,000 employees, and will concentrate on growing its car auction marketplace business through acquisitions and international expansion, and by bolstering its digital, data analytical and technology capabilities.

Hallett said the major goals of the separation were to increase shareholder value and put each company in a situation in which they could concentrate on their core businesses and better market themselves.

“We’re extremely happy so far,” Hallett told IBJ on Tuesday. “I think we’ve checked all the boxes on our goals.”

Hallett said KAR officials have long thought the company’s stock price was undervalued because investors had a difficult time understanding every aspect of the multipronged business model. Company leaders also thought IAA would be perform better against rival Copart Inc. if it was out from KAR’s shadow.

Copart and IAA each control about 40 percent of the North American salvage auction market. Despite their similar size, Copart’s stock was recently trading at a multiple of about 19 times earnings while KAR’s was about 10.5.

KAR officials said separating IAA would help both companies better tell their stories and boost their stock value.

Under terms of the spinoff, KAR shareholders retained their KAR shares and received one IAA share for every KAR share held as of 5 p.m. on June 18.
Shares of KAR closed at $62.08 each on Thursday and, after the split, closed Friday at $25 each. They rose to $25.20 at the end of the trading day Tuesday.

IAA shares, meanwhile, opened as high as $41.42 Friday and rose to a close of $41.61 on Tuesday.

In combination, the shares would now be worth $66.81 apiece, an increase of 7.6 percent since Thursday.  

“We’re already seeing a big increase in shareholder value,” Hallett said. “As CEO, it’s always nice to see things go as they we’re modeled, as we planned them.”

Hallett said the separation resulted in no “material” employment changes at KAR because the companies had little overlap in operations. KAR began moving into its new $80 million headquarters in Carmel this week, where Hallett said there is room for another 300 to 400 more employees as the company grows.

KAR has about 15,000 employees in the United States, Canada, Mexico and Europe, with more than 1,000 of those in Carmel.

Hallett said KAR is always in discussions about more acquisitions. It’s most recent acquisition, Belgium-based CarsOnTheWeb, which it bought for more than $103 million, began doing business under the brand Adesa-Europe on Monday.

KAR will continue to look for growth opportunities overseas, Hallett said, and continue to focus on improvements in its digital and data capabilities so it can sell more vehicles online.