Mergers and acquisitions are happening among auto auctions, and attracting private equity players, for the same reasons they are on the rise among car dealerships: robust and growing sales volumes and aging owners.
America's Auto Auction will open its 12th location this summer and is set to grow even larger, said Dan Dross, managing partner of Trinity Hunt Partners, a Dallas private equity firm that acquired controlling interest in the auction company in April.
Strong retail and wholesale demand in the auto industry and aging owners of independent auction houses who are looking for exit strategies will provide his firm a chance to add new sites, he said.
The auto-auction industry is undergoing some consolidation, but not to the same degree as in the retail auto industry, he added.
"I think there will be some additional consolidation. There are probably a good 75 independents out there and maybe as many as 100," he said. "You're starting to see aging owners who are looking at unlocking all of the embedded equity value they have created in those businesses and think about retirement."
The Lamar Hunt family, descendants of Texas oil tycoon H.L. Hunt, is a sponsor of Trinity Hunt Partners. GE Capital assisted with financing on the America's Auto Auction deal and made an equity investment in the auction company along with the new owners.
With the acquisition, Ben Lange, former president of America's Auto Auction, becomes the auction company's CEO. Dustin Miller stays as well and remains CFO. Both are shareholders and in charge of day-to-day business operations, Dross said.
"We always want the management," Dross said. "We're investors, not operators. We're trying to support the incumbent management team and find companies that have an excellent management team in place and support them with both growth capital and strategic initiative."
America's Auto Auction was founded in 2005. It was built primarily through acquisitions and a few greenfield sites that typically have three to six lanes, a strategy that will carry over to the new expansion plan, Dross said.
It caters primarily to franchised dealers who want to sell trade-ins and aged vehicles.
Its auctions have simulcast technology that enables dealers to buy vehicles online. But Dross said many of the vehicles it sells typically appeal more to bidders in physical auction lanes than to those bidding online.
That's because many of the vehicles are about eight or nine years old and have 100,000 or more miles on their odometers, so buyers likely will want to physically inspect them.
The group has sites in Florida, Georgia, Illinois, Oklahoma, Pennsylvania, South Carolina and Texas.
Any expansion "will mostly be east of the Rockies" Dross said.
As part of the deal, Trinity Hunt Partners also acquired a minority stake in Auction Credit Enterprise, a floorplan finance company for independent car dealers that was founded by the management team of America's Auto Auction in 2006.