Cox Automotive to Buy Dealertrack for $4 Billion
June 16, 2015
ATLANTA and LAKE SUCCESS N.Y. — In a November 2014 white paper, Cox Automotive concluded that a lack of an end-to-end system that bridges online and offline shopper activities is a major contributor to longer transaction times. A solution may not be far off with yesterday’s announcement that Cox has entered into a definite agreement to acquire Dealertrack in an all-cash transaction valued at $4 billion, or $63.25 per share.
The deal, which is expected to close in the third quarter pending antitrust approval from federal regulators, brings together two software giants that officials with both companies said have very little overlap.
Cox, which is expected to generate $5 billion in revenue this year, brings to the table digital marketing, wholesale and ecommerce solutions marketed through more than 20 brands, including household names like Manheim, Autotrader, Kelley Blue Book, vAuto, VinSolutions and Xtime, while Dealertrack, which posted first quarter revenue of $253 million, is an established leader in lending, digital marketing and retail software solutions. Combined, the two companies will have solutions that touch every part of the dealership.
“We really do believe, if you look at the assets of both companies, they are extremely complimentary,” said Dale Pollak, founder of vAuto, which Autotrader purchased in September 2010. “We do have the solutions that can produce that end-to-end experience.”
Pollak noted that vAuto is one of the few overlaps, as Dealertrack offers its own inventory management solution. He said until the deal closes, it’ll be business as usual for the two companies, but he did note that Cox is currently forming an integration team to determine how all the parts will fit together, including vAuto and Dealertrack’s Inventory Solutions. “We’re also talking to dealer customers of both products to get their input,” he said.
Pollak said Cox Automotive has been looking to make a “bold” move since the beginning of last year. That’s when John Dyer, CEO and president of the Cox Enterprises, issued a mandate to the Cox Automotive team. “He said to be bold, take action and stay true,” Pollak recalled. “So we thought about what he was saying, what cue he was giving us.”
By mid-year last year, Pollak said the business unit had identified Dealertrack as its acquisition target. Conversations between the two companies went from casual to “slightly more than casual” around the National Automobile Dealers Association’s 2015 convention, with discussions becoming serious over the last two months.
“To be honest, we looked at every company,” Pollak added. “However, there was no other company that possessed the suite of products that were so complimentary and necessary to create that objective of an end-to-end solution.”
Dealertrack has also been on a buying spree in recent years, it’s most notable acquisition being digital marketing giant Dealer.com on March 1, 2014, for $1 billion in cash and stock. The company also acquired ASR Pro, a provider of a web-based multipoint inspection solution and other fixed-operations services, in July 2014.
“I am confident that with Cox Automotive, we will fully unlock the potential of our combined brands and teams in the service of our clients,” noted Mark O’Neil, chairman and CEO of Dealertrack, in the press release announcing the deal. “Dealertrack team members have been a critical element in the tremendous success our company has achieved, and I want to thank all of our team members as we move forward into this exciting new chapter of growth.
“I am extremely enthusiastic about our future with Cox Automotive,” added O’Neil, who will stay on as CEO of Dealertrack once it becomes a wholly owned subsidiary of Cox Automotive.
The deal, which will be funded through an existing bank facility, a new $1.85 billion bank term loan arranged by Citigroup Global Markets Inc. and a $750 million common equity investment from BDT Capital Partners, was unanimously approved by Dealertrack’s board of directors.
“This is a great investment in our customers and in the auto industry,” stated Sandy Schwartz, president of Cox Automotive, in the press release announcing the deal. “We have long admired the Dealertrack team and its highly respected brands. Integrating our platforms will be a big step forward in our shared vision of providing open, cost-effective and efficient solutions for dealers, lenders, manufacturers and consumers.”