Manheim Auctions Inc., the nation's biggest auto auction chain, will handle 60 percent of the vehicles sold at auction in the United States with the purchase of ADT Automotive Inc.
Manheim said Friday, Jan. 14, that it has agreed to buy one of its chief rivals for $1 billion in cash. The deal ends rumors about whether ADT was for sale.
Manheim is already the largest of the 'Big Three' auction chains. It operates 67 auctions in the United States, Australia, Canada, Puerto Rico, France and the United Kingdom. ADT operates 28 auctions in the United States; Adesa Corp. of Indianapolis owns 29.
The deal, which requires approval by federal regulatory agencies, would put Manheim in control of about six of every 10 vehicles that flow through U.S. wholesale auctions. ADT auctioned 2.1 million vehicles in 1998; Manheim said it offered more than 6.5 million for sale, and Adesa handled 1.5 million.
The National Auto Auction Association said 14.5 million vehicles rolled through the lanes of its member auctions that year.
Automakers said they didn't expect the deal to affect them.
But the announcement appears to mark an abrupt change for Tony Moorby, CEO of ADT. A month ago, Moorby told Automotive News that ADT's parent, Tyco International Ltd., had assured him that ADT was not for sale.
Moorby also said that Tyco had committed $300 million for acquiring new auctions and relocating existing ones.
According to Moorby, Tyco CEO Dennis Kozlowski had told him: ' `We like you, we like your profits, we like your cash flow, you are not for sale; in fact we would like for you to grow and we'd like for you to do it quickly.' '
`A GOOD FIT'
Hal Logan, senior vice president of marketing at Manheim, said ADT is a good fit for Manheim. He cited several attractive ADT programs, including one that helps its clients recover repossessed vehicles. Another handles end-of-lease vehicles for clients.
Manheim, of Atlanta, is a wholly owned subsidiary of Cox Enterprises Inc.
ADT's owner, Tyco, is a diversified manufacturing and service company based in Hamilton, Bermuda.
In a statement, Tyco's Kozlowski described ADT as an 'excellent business.' But he said it does not fit in with Tyco's other operations. They include health care, electronics, tele-communications and specialty products.
'The sale will immediately enhance our already strong cash flow, which we will continue to reinvest in each of our four businesses to further drive Tyco growth,' said Kozlowski.
Logan sidestepped the issue of how the acquisition affects Manheim's share of the wholesale auction business by saying that wholesale auctions are one of several ways dealers acquire used vehicles.
'If you look at the average dealer's lot, no more than 30 percent (of their used vehicles) come from auctions,' Logan said.
He said Manheim expects the acquisition to be completed by midyear. Logan said the two companies will operate separately until then. He anticipates some layoffs because of overlapping operations but could not be specific.
Mike McHale, director of remarketing at General Motors Acceptance Corp., said he believes the merger will strengthen the auction industry.
'Manheim has the capital to modernize facilities and bring Internet technology forward,' said McHale, who is responsible for selling GMAC off-lease vehicles to lessors and dealers.
Neither Jim McGiffin, corporate remarketing manager at Toyota Motor Sales U.S.A. Inc., nor Jim Yates, director of remarketing at Nissan North America Inc., anticipates any problems in relationships with Manheim.
'We currently do business with all three major companies and several independents,' Yates said. 'We don't have any fears.'
Lynn Weaver, chairman of the 158-member Independent Auction Group, said the merging of ADT into Manheim will be good for independent auctions.
He said the independents can offer the personalized, one-on-one service that may not be available at some auctions within the chains. Also, Manheim is constantly changing and upgrading its operations, forcing the independents to keep up.
'Anytime you have a merger like this, it will shake up relationships and contacts will change; you don't see that at a facility that is family owned and operated,' said Weaver, general manager of Harrisburg Auto Auction in Mechanicsburg, Pa.
For Manheim to spend that amount of money, they must think they have room to grow. The independents will grow with them.'