Carsales.com to acquire full ownership of US-based lifestyle vehicle company Trader Interactive for $1.17bn

Carsales.com will pay $1.17bn for the 51 per cent of North American company Trader Interactive it does not own as it pursues opportunities in the lifestyle sector.

Carsales.com chief executive Cameron McIntyre said the purchase was ‘a natural evolution of our international growth strategy into large, attractive markets’. Picture: Stuart McEvoy

Carsales.com, the ASX-listed automotive marketplace, will pay $1.17bn for the 51 per cent of North American company Trader Interactive it does not own as it pursues opportunities in the lifestyle sector.

To do this, the Australian firm told investors it would embark on a $1.2bn equity raising, and upsize its debt facility from $900m to $1.4bn, which it will use to replace the existing $562bn facility at Trader Interactive.

Carsales.com chief executive Cameron McIntyre said on Monday that the purchase was part of “a natural evolution of our international growth strategy into large, attractive markets”.

“There are lots of long-term structural trends towards lifestyle vehicles” like caravans, bikes and trucks, in which Trader Interactive specialises, he said.

The Virginia-based company provides inventory management, advertising strategies and marketing support services.

Carsales.com first acquired a stake in Trader Interactive in May 2021 as it attempted to diversify away from its core classified business. The other owners were West Street Capital Partners, a subsidiary of Goldman Sachs, and Eurazeo North America – although it had a call option to acquire the remaining interest.

Goldman Sachs, Morgan Stanley and UBS have been engaged to advise on Carsales.com on its capital raising.

Carsales.com “very deliberately” structured that initial acquisition to poise itself for full ownership, Mr McIntyre said.

“We had the opportunity to get to know the CEO of the business (Trader Interactive) Lori Stacey,” he said. “We’ve been so impressed by them. We knew it was a great business when we made our investment and we’re even more sure now that the quality of the team is there.”

Mr McIntyre said he believed Carsales had “got good value” in its full acquisition of Trader Interactive, given this latest deal was settled at a lower multiple than the first. He did not comment on whether the lower valuation was due to a broader market downturn in the US.

The lower multiple is reflective of a “volatile market and macro backdrop”, RBC Capital Markets equities analyst Craig Wei-Weng said. “Management commentary revealed that the business is continuing to perform strongly both domestically and internationally. Domestic performance reflects continued healthy levels of demand in the Australian auto and non-auto markets as well as increased adoption of key growth products. International performance has been strong in the key markets of Korea, Brazil and the US.”

On an investor call on Monday, Mr McIntyre emphasised that there were now competing priorities between Carsales.com and Trader Interactive’s private equity shareholders, and that he had spent a lot of time with the US business working on strategic opportunities and Carsales.com wanted shareholders to receive the entirety of those benefits.

Given Trader Interactive’s business growth, Mr McIntyre claimed he would expect to have paid more for full acquisition if Carsales.com had signed the deal in 12 months’ time. The US automotive market is twice the size of Australia’s, and its nonautomotive market 16 times the size.

Mr McIntyre said he believes the US market to be similar to what the Australian market was 10 years ago, making the acquisition a “really long runway opportunity.”

Ahead of a halt in trade on Monday, Carsales.com shares were at $20.76. Since the start of the year, they have fallen 18.8 per cent, or $4.82.

Trader Interactive’s marketplaces had approximately one million total listings in May 2022, and an average of 22 million monthly visitors through 2021.

Given the size of the US market, the acquisition is expected to generate significant financial returns for shareholders, Mr McIntyre said.

In its full ownership of Trader Interactive, Carsales will focus on executing long-term product and technology strategy, he added.

The announcement is the latest in a series of international expansions by Carsales, after its acquisition of businesses in South Korea and Brazil.

“The acquisition is a natural evolution of our international growth strategy into large, attractive markets,” Mr McIntyre said.