January 26, 2015 — Sitting in the San Francisco airport waiting for a flight (after missing my morning flight) and going through nearly 50 pages of notes from last week’s NADA convention and related conferences. I’m not a big theme guy, but on the last day of the convention, that seemed to be the question I heard the most. These are just a couple of brief observations from NADA. I’ll expand on these in a report from NADA that will be published next week.
Perhaps the biggest story coming from this year’s convention is the number of private equity investors on the show floor looking at both dealerships and vendors. We’ve been writing about the fact that the automotive retail space has been getting the attention from a lot of big money for several months and this year’s NADA bears that out.
Certainly, the announcement in October that Warren Buffett is buying the Van Tuyl Group (By the way, that deal has not closed yet, and now might not close till March) has brought several private equity folks to the arena evaluating the potential opportunities dealerships provide.
Following a presentation I gave at the Auto Team America conference before NADA last week, I exchanged several business cards with representatives from private equity firms who were in town to learn more about potential dealership investment opportunities. I was asked to speak about the Buffett and Van Tuyl deal — try speaking about a deal that hasn’t happened yet — and Lithia’s acquisition of DCH.
The panel before my presentation, moderated by Alan Haig of Haig Partners, was phenomenal. it was candid, educational and interesting. Mark Luppenlatz, vice president of corporate development for Group 1 Automotive, was the seasoned veteran on the panel which also included Todd Blue of the Indigo Automotive Group and Michael Morais, the CEO of the Open Road Automotive Group — both young and dynamic leaders. Raul Rodriguez, vice president of corporate development for AutoNation provided insight into how the group searches for deals and gets them across the finish line. All four companies are active buyers and have specific strategies when looking for and adding rooftops.
Meanwhile, Automotive News last Saturday evening reported the story that generated the most attention at NADA when it “broke” the news that executives managing the Soros Fund Management LLC were in San Francisco talking to dealers. The Banks Report has been hinting the last few months that the industry would soon start hearing of other big names in addition to Buffett’s that are interested in dealerships. The truth is, we’ve known about Soros’ Management Fund’s potential interest for awhile.
I was one of two speakers at the dinner hosted by Bel Air Partners and Capital Automotive that Automotive News reported on. While I won’t comment on Vipul Tandon’s supposed remarks — he can comment if and when he wants — I will say that investors such as Buffett or Soros, or other Family Office-type investment groups — are good for the industry, and it would be wise for manufacturers to view them as viable partners. They bring access to capital markets; financial acumen and a desire to be long term investors in the industry. These aren’t the typical hedge fund plays — three to five years and then out. To the manufacturers, I say, don’t be idiots in making it hard for these types of investors.
Now about my presentation — Let’s just say it may have been one for the ages. I think I got through about five sentences before I found myself moderating what became a heated and spirited discussion about the right of first refusal. Definitely a hot topic today among dealers. Needless to say, I didn’t get through the rest of my remarks.
The Banks Report has uncovered about 12 cases dating back to 2013 in which manufacturers successfully employed the tactic to keep a dealer from buying a store. Toyota, Nissan, Audi and General Motors seem to be the automakers most willing to use the tool — or weapon, depending on your perspective. TBR has covered the issue thoroughly since May of 2014 (Buyers and Sellers Both Hurt by Right of First Refusal)
Vendors, meanwhile, are attracting a never before seen attention from the investment community. My phone has been ringing off the hook since we published our analysis of the activist investors making a play for CDK. TBR has been covering the story since October. I also had numerous impromptu meetings with analysts while on the show floor at NADA.
The activist investors are driving much of the interest as analysts and investment firms try to learn about the dynamics of automotive retail and which of the large firms — CDK, Reynolds and Reynolds, DealerTrack, Cox Automotive or Dominion — are best positioned in the space.
And then there is Carl Icahn’s sudden attention in Gannett — that is a story that will have a big say in the future of Cars.com. Truth is, Cars.com is positioned nicely however that plays out. But that will be interesting as a potential proxy fight is brewing.
The success or failure of these activists will be an ongoing story that will shape the future of automotive retail technology. So hang on, the next couple of years could be a crazy ride….
Meanwhile last year was unprecedented in automotive retail with an estimated monster total of more than $30 billion in equity changing hands.
2014 Automotive Retail Vendor Deals — More than $30 billion in equity changes hands
- Ally Financial led the way with a $12.04 billion IPO earlier this year.
- Brookfield Property Partners acquired Capital Automotive for $4.283 billion.
- Cars.com was acquired by Gannett Co. in a deal valued at $2.8 billion.
- TPG acquired the Warranty Group for $1.5 billion
- KKR acquired Internet Brands (CarsDirect) for $1.1 billion.
- DealerTrack acquired Dealer.com for $987 million.
- TrueCar’s IPO was valued at about $880 million.It’s market cap now is near $1.4 billion.
- ADP spun off its Dealer Services Group in October in a $700 million IPO. The group generates about $2 billion a year in revenue and now has a market cap of more than $7 billion.
Another seven smaller transactions that amounted to an estimated $1 billion in equity.
- OneCommand’s $11 million purchase of CRM firm Higher Gear.
- Private Equity firm HPPG’s purchase of AutoAlert.
- Vista Equity’s majority stake in DealerSocket.
- AutoLoop buys Car Research.
- Reynolds and Reynolds acquired AddOnAuto, a firm that helps dealers sell accessories online.
- DealerTrack’s acquisition of ASR Pro.
- Search Optic’s acquisition of DigiGo.
- Cox Automotive’s $325 million purchase of Xtime.
- Cox Automotive’s acquisition of Buy Book Technologies and investment into AutoMD.