Another investment that was hard hit during the quarter is IAA (IAA, Financial), a company that auctions damaged vehicles on behalf of insurance companies. IAA was spun out of KAR Auction Services in June 2019. We like the industry’s duopoly structure, pricing power, and high returns and are also excited about the opportunity for IAA to invest in the business, drive growth, and improve margins as an independent company. Management recently disclosed a strong profit improvement plan which targets a 30% increase in EBITDA over the next three years, excluding contributions from core business growth. As a result of COVID-19, traffic congestion, miles driven, and accident frequency are seeing dramatic one-off declines but we expect a recovery as the economy reopens and cheap gas and pent-up demand help get the consumer back on the road. The auto salvage industry has been resilient during past economic downturns and has grown revenue at a 10% CAGR over the last 20 years.
From Daniel Loeb (Trades, Portfolio)'s Third Point first-quarter 2020 shareholder letter.
