By Joshua Franklin

(Reuters) -British online car seller Cazoo Holdings Limited has agreed to go public in New York through a merger with AJAX I Acquisition Corp, a blank-check acquisition company led by billionaire U.S. investor Dan Och, it said on Monday.

The deal with AJAX I, a special purpose acquisition company (SPAC) listed on the New York Stock Exchange, values Cazoo at $7 billion, including debt, more than double the $2.6 billion valuation in its private funding round in October.

It underscores how vehicle sales have shifted to online platforms during the coronavirus pandemic as car buyers practice social distancing.

“We think, in markets like ours, that shift is permanent because consumers are discovering new ways to transact which are better,” Cazoo Chief Executive Alex Chesterman said in an interview.

Chesterman founded London-based Cazoo in 2018. The company offers online purchases and delivery of used vehicles in Britain and continental Europe, operating a similar model to U.S. peer Carvana Co.

The news boosted shares in British newspaper publisher Daily Mail and General Trust Plc, which has a stake of around 20% in the business. DMGT said it expects to receive cash and shares valued at about $1.35 billion.

Och underlined the potential to expand the business.

“The European used car market is (worth) over $600 billion annually. Digital penetration is approximately 1%-2%, we think that’s going to grow dramatically. That creates the opportunity,” Och said.

Carvana’s stock is up more than 400% in the last year, with a market capitalization of $44.6 billion.

Shares of rival U.S. car seller Vroom Inc are up 68% since its IPO in July. However, CarLotz Inc, a U.S. consignment store for used vehicles, completed a SPAC merger in July and its shares currently trade at $7.70 apiece, below the $10 SPAC IPO price.

The merger will provide Cazoo with up to $1.6 billion in new funding, which it plans to spend on growing its brand and infrastructure, and expanding into new markets such as Italy and Spain.

“It gives us enough capital to take us to profitability and beyond,” Chesterman said.

The funds are from the $805 million which AJAX I raised in October in an initial public offering (IPO) and $800 million through a private investment in public equity (PIPE).

Investors in the PIPE include D1 Capital Partners, BlackRock and Fidelity Management, with $200 million of the PIPE financing also coming form AJAX’s team including Och and Instagram co-founder Kevin Systrom. The PIPE orderbook was oversubscribed, Och said.

SPACs like Ajax raise funds in an IPO with the aim of merging with a private company, which then becomes public as result of the merger. It is an alternative to a traditional IPO.

(Reporting by Joshua Franklin in Boston; Editing by Daniel Wallis and David Evans)