2018 a Record Year for Auto Retail Vendor M&A Activity

2018 a Record Year for Auto Retail Vendor M&A Activity

November 7, 2018 — More than 60 deals have been completed through October this year, making 2018 the most active year on record for investment and acquisition activity among vendors serving the automotive retail space.

(NOTE: This is a partial report made available to attendees of AUTOVATE 2018). 

Despite the record activity this year, the total amount of equity changing hands is far less than the nearly $30 billion in 2014 driven by large deals such as CDK’s and TrueCar’s IPO, Gannett’s acquisition of Cars.com and Brookfield’s $4.3 billion purchase of Capital Automotive.

We have a recap of deals from September to October below.

To download a spreadsheet of 2018 deals to date, click: Vendor_M_A_3rd_2018

Click here to see our first quarter report (for premium subscribers).

.Nevertheless, headlining this year’s activity is CDK Global’s acquisition of CRM leader ELead1One for approximately $525 – $550 million, one of the industry’s biggest takeouts of a private company (CDK likely will disclose the price in its first quarter fiscal year 2019  release November 7th).

Cars.com’s acquisition of technology provider Dealer Inspire for an initial $166 million (the deal could reach $200 million if specific targets are hit) was another headliner deal in part because of the multiple Dealer Inspire commanded, but also because it gives Cars.com an innovative website provider with significant market share.

Also big was Bain’s acquisition of private equity firm Lindsay Golberg’s stake in DealerTire. Terms weren’t disclosed, but media reports in January indicated a deal for the tire company could be as high as $2 billion.

TRENDS

Below is a quick recap of at least 12 trends we are watching closely over the next three years. Expect a lot of coverage of these areas.

  1.  Digital Retailing – saturated market. Consolidation/ shakeout probably not far off. Also, there is lots of chatter about potential roll-up strategies for digital marketing players – a dynamic we consider to be a realistic and viable strategy.
  2.  Vehicle Subscription –many flavors with the book still being written. The shakeout has already begun with Lincoln going back to the drawing board and Cadillac shuttering its much-hyped Book initiative.
  3.  Ride Hailing’s Expansion into Auto Retail (Lyft & Uber developing solutions for dealers).
  4.  Data Analytics quickly is becoming a differentiator for successful companies.
  5.  Amazon’s Move into Digital Advertising — read our initial report here. 
  6.  Pending Renaissance of CRM Technology – two to three years out.
  7.  Growing importance of Fleet-Based Solutions — will be a crucial ingredient for successful subscription-based models.
  8.  Service/Repair Innovation still a few years away (waiting on connected vehicle technology), but new entrants with mobile-based apps are getting investment now.
  9.  The question of collision/body shop future business – growth in revenue over next few years (as tech on vehicles makes repairs more expensive) but could face significant pressure next 10 -15 years as connected technology begins to reduce collisions.
  10.  Big deals not getting across the finish line – we know of at least three large deals this year that have not made it past the finish line.
  11.  Growing sophistication and savviness of dealers on the impact of acquisitions on vendors.
  12.  Continued interest from investment firms.
OCTOBER DEALS

October has been one of the more active months with 14 deals being announced  — 10 acquisitions and four investments.

Providence/Conversica

Type: Series C Investment

Terms: $31 Million (Speculation is the investment values Conversica at $300 million)

Category: Artificial Intelligence, Chat

Conversica serves numerous sectors, with automotive being a key area of focus. While Conversica tries to avoid being described as a chatbot — a once promising technology delivering underwhelming results —  it still is an artificially intelligent text-based solution, albeit, with a narrow focus. Conversica aims to be the initial point of contact between a business (dealership) and a potential customer. After qualifying the customer by conversationally obtaining information via text or email, the solution then hands the customer to a live human.

Look for Conversica to begin offering solutions that able to handle more extensive conversations as well as doing so with a voice component.

It has become a somewhat hot segment in automotive with LivePerson’s acquisition of Contact At Once! followed by multiple purchases this year. CarLabs recently took the cover off its AI technology and is looking to make a big play in automotive.

Conversica, now eight years old, has more than 1,000 enterprise clients, along with clients in the auto space. Providence Strategic Growth Capital Partners, which has had multiple hits in automotive, likes the company enough to have led the most recent round in addition to leading a round two years ago of $34 million. The last five years, Conversica has raised more than $87 million.

Other firms participating in the latest round include new investors Savano Capital and CIBC along with current firms Toba Capital and Kennet Partners.

Greenbriar/Spireon

Type: Acquisition (Buyout of Bertram Capital’s stake)

Terms: Undisclosed (Greenbriar Equity Group typically focuses on firms whose enterprise value is between $100 million to $1 billion while investing anywhere from $75 million to $150 million in each transaction).

Type: Fleet Solutions, Telematics, Vehicle Analytics

In 2015, The Banks Report predicted Bertram would exit its position in Spireon. As we wrote in April in our first quarter M&A report:

“Our timing is way off on this one, but we predicted in 2015 that Spireon’s acquisition of Inilex positioned it for sale. We’re still waiting. Bertram Capital has owned the company since 2011 and is beyond the typical length of ownership for firms in its portfolio. Meanwhile, Spireon keeps innovating and developing new solutions for the franchise dealer market.”

Spireon, since installing Bertram’s operating partner Kevin Weiss as CEO in 2016, has steadily expanded into the fleet and telematics arena while growing its presence with new car dealerships.

Reynolds and Reynolds/AutoData Direct

Type: Acquisition

Terms: Undisclosed

Category:  Vehicle Data and Compliance

Reynolds and Reynolds made its first acquisition of the year picking up AutoData Direct (ADD). The Tallahassee, FL-based firm provides real-time access to DMV vehicle and drivers license data from 30 states along with numerous other related services and will strengthen its electronic titling and compliance business. The acquisition follows Reynold’s strategy of buying tuck-in companies whose solutions fit nicely with current offerings. The last few years, the additions have not been exciting or headline-type deals, but instead, fall into the category of basic blocking and tackling that more often than not, adds to Reynolds’ bottom line.

Terms were not disclosed. Portico Capital advised ADD on the deal.

Royal Bank of Canada Ventures/Your Mechanic

Type: Investment

Terms: $10.2 million Series B

Category: Service and Repair

Royal Bank of Canada Ventures led a $10.2 million Series B investment in the mobile service and repair app Your Mechanic. The company, founded and led by Anthony Rodio and based in Mountain View, CA has raised a reported $38.2 million from 30 different investors since its founding in 2012. This year alone, the nascent category of mobile service and repair has raised more than $22 million and has had at least four acquisitions or investments.

The app matches customers with vetted repair facilities that provide more than 500 different mobile repair services at the customer’s home or office. The solution is available in more than 2,000 different cities. The app offers transparent pricing via a pricing calculator that factors in industry-standard labor times along with taxes. Each service is backed by a 12-month/12,000 mile guarantee and a $1 million liability.

Other investors in the latest round include Rick Wagoner (former head of General Motors); Softbank Capital; DataPoint Capital and American Family Ventures.

Tenaya Capital/Wrench 

Type: Investment

Terms: $12 million

Category: Service and Repair

Tenaya Capital led this $12 million Series B investment in Wrench, a Seattle-based service and repair mobile app (competitor to Your Mechanic – see above). Customers enter information about their vehicle and the work service needed into the app along with the location of the vehicle. Wrench then dispatches the appropriate mechanic to complete the work. Similar to Your Mechanic, Wrench also offers a one-year/12,000 mile guarantee. Wrench will use the investment to expand nationally. The investment follows its September acquisition of competitor Otobots (see below).

The company, founded by Ed Peterson, is two years old and has raised more than $17 million. Other investors in the latest round include Vulcan Capital and Madrona Venture Group.

Cox Automotive/RideKleen

Type: Acquisition

Terms: Undisclosed

Category: Mobility and Fleet Management

Car washing and detailing is not an area most people think of when it comes to mobility solutions, but it likely will be one of the more critical competencies. Hence the latest acquisition (fourth acquisition or investment in 2018) by Cox Automotive – RideKleen, a cloud-based mobile car wash and detailing solution servicing the B2B arena. Its focus is on car share and rideshare companies, parking garages, and corporate fleets – think mobile cleaning and fleet management. Pratik Patel founded the Philadelphia-based company in 2013 out of a stand-alone automotive detail shop. The company received a reported $150,000 in seed capital from Quake Capital in 2017. (Competitor Get Spiffy — which focuses on the consumer market — raised $9 million in July – see below).

Cox did not announce the acquisition, but CEO Sandy Schwartz has mentioned numerous times publicly over the last year that the ability to provide mobile detailing and maintenance services will become more critical as autonomous fleets grow. Look for RideKleen to become part of Cox’s new Mobility Solutions division, created a couple of months ago.

LivePerson (Contact at Once!)/AdvantageTec

Type: Acquisition

Terms: Undisclosed

Category: Texting

Texting comes to the service department with LivePerson’s latest acquisition, AdvantageTec, whose texting solution provides conversational commerce capabilities in the service department. Industry veteran Thomas Jung founded company nearly 10 years ago. The company also provides digital signage solutions.

LivePerson’s platform lets dealers manage all messaging conversations from one system — whether the messaging occurs in webchat, Facebook Messenger, Google Chat text or Apple Business Chat. Service advisors can share inventory and vehicle history reports, schedule appointments and secure work approval on the platform. Terms of the deal were not announced. (LivePerson also acquired Conversable in September). Look for Contact At Once! to hit the market harder in 2019 with a conversational e-commerce play.

Elevate Partners/Perq

Type: Investment

Terms: $5 Million

Category: Artificial Intelligence, SAAS, Digital Advertising

Indianapolis-based Perq recently started coming on strong in the auto retail space when founders Andy Medley and Scott Hill pivoted in 2014 toward becoming a software company after 13 years of providing printing and direct mail services to dealers. The company split the software and marketing solutions into different companies this year.

Perq’s software, being used by a reported 1,000 clients, creates a personalized shopping experience on dealership websites (the company also serves the furniture store and apartment markets). The software uses predictive artificial intelligence to help guide car shoppers through the online shopping process. We expect to see Perq drive significant growth with Elevate’s investment and expertise added to its story of creating a more rational online customer experience while providing clarity to dealers’ digital advertising efforts.

Elevate led the recent round which included nine other Indianapolis-based angel investors.

Wavecrest Growth Partners/SpinCar

Type: Investment

Terms: $22 Million

Category: Augmented Reality

The stars are aligned for SpinCar and CEO/Founder Devin Daly to become the augmented/virtual reality leader in the automotive retail space. As of now, it’s the only player in the space and is armed with a $22 million investment along with new board members industry veteran David Metter and Harpreet Grewal, former CEO fo Constant Contact.

Its main competitor, Car360, was taken out of the market when Carvana acquired it earlier this year. (We know of one other company in the space, FlowFound, a startup just now hitting the market).

SpinCar’s platform turns online content into VR-enabled experiences while capturing customer behavior to help dealers personalize the shopping experience. Over the next three years, AR and VR technology potentially could lead to a new level of website design that provides a highly interactive and intelligent experience for shoppers.

MSX International/Impetus Automotive

Type: Acquisition

Terms: Undisclosed

Category: Data Solutions, Marketing

Automotive retail consultancy firm MSX doubled its business in the United Kingdom with the acquisition of Impetus Automotive from parent company Volvere plc. Impetus also has a presence throughout Europe, China, Japan, and Australia.

NCM Associates/TSI Auto Solutions

Type: Acquisition

Terms: Undisclosed

NCM Associates expanded into Canada with the acquisition of TSI Auto Solutions, a data SaaS and reporting firm, which also offers 20 Group services.

For the next several months, the companies will operate “business as usual,” to minimize any impact on their clients. It’s the second acquisition of the year for NCM, which acquired ConSept in April. The company also announced the creation of The Auxilio Group in February, a joint venture with accounting firm DHG (Dixon-Hughes Goodman).

Interpublic Group/Axciom Marketing Solutions

Type: Acquisition

Terms: $2.3 Billion

First, the background. Axciom, which included Axciom Marketing Solutions and LiveRamp, sold the much bigger marketing solutions division to Interpublic Group (IPG) for $2.3 billion. Axciom then assumed the LiveRamp moniker and changed its ticker designation to RAMP.

Not necessarily an automotive-specific deal, the move impacts firms providing marketing services to OEMs and dealers.

Axciom Marketing Solutions is a big player in the advertising world because of its consumer data (nearly two-thirds of the world’s population) and insights it provides ad agencies. As a result, it’s closely tied to the automotive advertising sector.

IPG decided it was time to own the data rather than renting it. Additionally, IPG gets access to AMS’ numerous technology products and more than 1,600 data scientists that will provide better structure and insights from its data management platform. Not only does AMS have one of the biggest repositories of consumer data, but it’s also one of the best at segmenting that data with predictive analytics capabilities.

LiveRamp, which provides the technology infrastructure that enables marketers to tie data back to specific people, always seemed to be handcuffed in the market because of its close relationship with AMS, a competitor to many of its clients. Shedding AMS also gives LiveRamp more than $2 billion to invest in architecture to deepen relationships with clients while expanding into new sectors.

OEConnection/Bluegrasscoms

Type: acquisition (to be completed by the end of the year)

Terms: Undisclosed

Category: Service, Parts

Infused with cash from Providence Equity’s 2016 investment, OEConnections is acquiring the U.K.-based Bluegrasscomms (BGC), a firm providing software and consulting services to collision services in Europe. The acquisition follows last year’s purchase of the Clifford Thames group, also in the U.K. The acquisitions should push OEC’s annual revenue to more than $160 million.

Bain Capital Private Equity/Dealer Tire

Type: Acquisition (to be completed by the end of the year)

Terms: Undisclosed (Possibly in the $2 Billion Neighborhood)

Category: Service, Tires

Bain Capital Private Equity is acquiring Lindsay Goldberg’s majority stake in the Cleveland-based Dealer Tire founded by the Mueller family in 1999. Scott and Dean Mueller will continue leading the management team. Dealer Tire manages replacement tire and parts programs for more than 20 automotive OEMs in the U.S. and China. It serves more than 10,000 automotive dealerships from nearly 40 distribution centers across the U.S.

Earlier this year, Dealer Tire invested in online provider SimpleTire and in Tyrata, Inc., a tire sensor and data management company.

eBay/Motors.co UK

Type: Acquisition

Terms: Undisclosed (will close in 2019)

Category: Classified Listings

Cox Automotive is selling its consumer-facing brand Motors.co in the U.K. to eBay. The move is part of an ongoing company-wide restructuring. For eBay, the acquisition positions it better compete against Autotrader (no relation to Autotrader in the U.S.). Adding Motors UK along with its affiliate sites Topgear.com, Raccars.co.uk, Parkers.co.uk, Autovillage, and Honest John to eBay Motors UK and Gumtree UK platforms will expand eBay’s overall vehicle listings to more than 620,000.

Stuart Holmes/Instamotor

Type: Acquisition

Terms: Undisclosed (acquired the IP and technology)

Category: Private market, Online Transaction

Longtime industry veteran Stuart Holmes recently purchased the technology and intellectual property of Instamotor, a peer-to-peer mobile app for buying and selling cars. The startup, founded in 2014, never really got off the ground, and tried shifting toward allowing dealerships list inventory on the app last year. Stay tuned — there may be more news on this in the coming months.

SEPTEMBER DEALS
AutoNation/Vroom

Type: Investment

Terms: $50 Million for a 7% Stake

Category: Online Transactions, Used Vehicles

AutoNation became the second public dealer group to announce an investment in an online transaction company, taking a 7% stake for $50 million in Vroom (See Lithia’s investment in Shift Technologies below).

For now, outgoing Chairman and CEO Mike Jackson says the investment is just that – an investment — and that there are no plans as of yet to turn it into anything more. But AutoNation likes the management team which is led by Paul Hennessy, a car guy with an impressive resume – he’s the former CEO of Priceline.com and CMO of Booking.com. The company paid $95 million in December 2015 to acquire Texas Direct Auto, one of the country’s biggest used vehicle dealerships.

For Lithia and AutoNation, these investments are mainly for learning purposes at the moment with the idea of possibly creating new revenue streams in the pre-owned market. Vroom, since 2013, has raised more than $379 million over eight investments.

Cox Automotive/Intersection Technologies (F&I Express)

Type: Acquisition

Terms: Undisclosed

Category: Finance, Online Transactions

Cox Automotive acquired Intersection Technologies’ F&I Express and its two affiliated companies, Express Digital Media and Express Recoveries, properties it has had a minority stake in since 2013. F&I Express technology connects dealers with F&I providers — including more than 160 in Dealertrack’s (a Cox subsidiary) network alone. The technology also should help Cox roll out a complete end-to-end digital transaction solution in early 2019. Operations will remain separate for the foreseeable future.

CDK Global/ELead1One

Type: Acquisition

Terms: Undisclosed (should be between $525 and $550 million)

Category: Customer Relationship Management

CDK Global closed on the acquisition of auto retail industry’s leading customer relationship management firm ELead1One in September.

The acquisition checks off several boxes for CDK while filling a big product hole — a viable integrated CRM platform with significant market share. ELead’s call center business is also a big plus along with its service scheduling and marketing solution. Also important is the fact CDK is getting a company with revenue of well over $100 million that is growing. Hugh and Judy Hathcock started the company in 1986 and built it without investors over the last 30 plus years.

TBR has predicted the move several times since January 2015 because of the many synergies between CDK and ELead1One. The companies began talking officially about a year ago. Investment banking firm Portico Capital advised ELead1One on the sale.

Wrench/Otobots

Type: Acquisition

Terms: Undisclosed

Category: Mobile Service/Repair

Mobile service repair is a sector that seems to be flying under the radar, but consolidation is happening, and investors are paying attention. Wrench, having raised  $5.3 million since its founding in 2016 (it added another $12 million in October), is taking out Otobots, a competitor. The move expands Wrench’s operations to the Chicago area in addition to Seattle, Portland, Dallas, Austin, Las Vegas, Los Angeles, San Francisco, and Denver.

LivePerson/Conversable

Type: Acquisition

Terms: Undisclosed

Category: Conversational Artificial Intelligence

Although not an automotive retail play, Conversable’s conversational commerce technology will likely find its way into the LivePerson’s Contact At Once! automotive platform. This is the first of two LivePerson acquisitions this year (see above — AdvantageTec purchase).

 

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