DETROIT, Feb 27 (Reuters) - Vehicle auction company KAR Auction Services Inc said on Tuesday it will spin off its salvage auction business unit within the next 12 months so both entities will be able to focus on their separated priorities and boost shareholder value.
After the spinoff Insurance Auto Auctions (IAA) will become a separate, publicly-traded entity. KAR shareholders will receive shares in IAA, which is expected to trade on the New York Stock Exchange.
KAR Chief Executive Officer Jim Hallett, who is due to remain in his post after the split, told Reuters the spinoff is to "simplify the story" and make it easier for Wall Street to evaluate the separate businesses.
"These two companies have independent strategies, they have unique customers with unique needs and expectations," Hallett said. "They have now grown to a size where they are able to stand on their own."
The tax-free spinoff is subject to final board approval after all regulatory requirements are met, Hallett said.
John Kett, who currently heads IAA, will stay on as CEO of the new company post-spinoff.
KAR's auction unit ADESA and privately-held Manheim, a unit of Cox Automotive, dominate the used-vehicle auction market. ADESA has a 28 percent share of the North American auction market.
Their customers include auto manufacturers, auto financing companies and vehicle fleets including rental car companies. KAR cleans up, repairs and sells used vehicles for those customers and most of its sales are to franchise and independent car dealerships.
Business is booming for KAR and Manheim, thanks to a flood of millions of nearly-new, low-mileage off-lease vehicles that are due to return to the market over the next few years. In 2017, KAR sold 5.5 million vehicles valued at more than $40 billion at auction.
In 2017 IAA accounted for 34 percent of KAR's annual revenue of $3.5 billion.
IAA's customer base consists primarily of insurance companies and it dominates the U.S. salvage market along with rival Copart Inc. IAA has a roughly 40 percent share of the North American salvage market.
Around 80 percent of its business comes from salvaging wrecked vehicles for insurers and then selling them at auction. It has also increasingly focused on salvaging vast numbers of wrecked cars after natural disasters such as hurricanes.
IAA salvaged 70,000 total-loss vehicles for resale after Hurricane Harvey flooded the area around Houston last fall, 65,000 vehicles after Hurricane Sandy in 2012 and 20,000 after Hurricane Katrina in 2005.
Year to date, KAR's shares are up 2.8 percent and is trading at around 10.5 times earnings. IAA rival Copart is up 11 percent year to date and is trading at around 15 times earnings.
Reporting By Nick Carey; editing by Diane Craft