Institutional investors may have been keen for a slice of Carma’s IPO, which raised $70 million at $2.70 a share, but retail investors weren’t as keen to get behind the wheel when the four-year-old digital car retailer made its ASX debut on Wednesday, with falling up to 10% on their opening day of trade, and ending the day down 7.4% at $2.50.
The IPO was underwritten by the joint lead managers, Canaccord and E&P Capital.
The online used car dealership (ASX: CMA) raised $100 million in total for its public listing, with existing investors also selling a $30 million stake in a secondary share sale.
The raise valued Carma at $369 million before the market shaved off $27 million of that market cap.
Former investment bankers Lachlan MacGregor (ex UBS) and Yosuke Hall (ex Goldman Sachs) launched the reconditioned car reseller in 2021 after raising a $28 million Seed round, topping up with another $75m Series A 14 months later in May 2022.
In March Carma borrowed $30 million in a convertible note as it prepped for its IPO, backed by ASX-listed Regal Funds Management and existing investor Tiger Global, with support from General Catalyst, Australian private equity manager Five V. Other investors include Entrée Capital and Avenir Growth, and family office Terrace Tower Group.
Tiger Global still owns just over a quarter (25.8%) of the business post-IPO, while MacGregor’s affiliate company, Invertia, holds 15.5%, followed by Hall’s Hallierke.
Last year the business sold 2000 cars – Australia sells more than 3.5 million used cars annually – generating $69 million in revenue at an average of $34,000 a car. The an average margin is around $4,000 a vehicle, but they expect scaling the business to increase the margins.
The business has a used car reconditioning facility in Sydney, with plans to expand nationally.
Carma says the IPO funds will be used to expand its used car buying from consumers, scaling reconditioning operations and increased vehicle inventory.
The split is $32m as working capital ($32m), $13m to fund operating cash flows and $12 for marketing.
The company predicts the impact with be dramatic, with FY25’s revenue growth of 3.6% forecast to accelerate to 78% in FY26, hitting $127.6 million
But it also expects to post similar after tax losses – $35.9m in FY25, and $35.3m in FY26, bring the total losses over three financial years to more than -$107m.
Carma chair Owen Wilson said at the IPO that: “I believe Carma is uniquely positioned to lead the digital transformation of the Australian automotive retail industry, and we look forward to welcoming future investors on this journey.”
A similarly-styled business in the US, Carvana, listed on the NYSE in April 2017 as “the Amazon of cars”, at US$15 a share. After bottoming out just above US$4 in late 2022, the stock has soared to now sit above US$309, although it dropped after Carvana’s COO sold nearly 9% of his holding for more than US$3.2 million this week.
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