October 9, 2017 — IHS Markit’s acquisition of Automotive Mastermind, one of the year’s biggest U.S.-based deals, brought an active third quarter to a close last week. The other big story of the quarter — and perhaps the year — is the nearly $200 million invested in six startups specializing in online automotive transaction solutions.
For the year, there have been 28 deals — 15 acquisitions, 11 investments and two public offerings (and one pending IPO).
IHS MARKIT — AUTOMOTIVE MASTERMIND
Founded in 2012, Automotive Mastermind was a company that few people knew about until it burst onto the automotive retail scene last November when JMI Equity invested $44.7 million into the predictive analytics firm giving it a reported $250 million valuation.
Less than 10 months later, JMI turned that investment into a $392 million sale giving IHS Markit 78% of the company. The number could go as high as $435 million based performance. Automotive Mastermind’s founders and employees retain the remaining 22% which IHS will buy out over a five-year period based on a valuation tied to performance.
The speed with which aM’s founders Marco Schnabl and Johannes Gnauck, two former Mercedes Benz Manhattan employees, have created a company generating such a large valuation is unprecedented in the auto retail industry. Earlier this year, the firm was ranked 7th on Inc. 5,000 list of the country’s fastest growing companies.
IHS is projecting aM’s fast growth will continue. The company should finish 2017 with $50 million in revenue — up from $23.2 million in 2016. IHS says it will generate $80 million in 2018 and $125 million in 2019. Furthermore, IHS says EBITDA margins that are in the single digits today should hit 25% in 2019.
The secret sauce for aM is the behavorial analytics engine Schnabl and Gnauck developed that predicts whether the customer is close to buying a vehicle. Dealers, using aM’s automated marketing platform, can create highly-specific marketing messages targeting those customers close to purchase or needing service.
For IHS, the purchase should fit nicely with Polk’s marketing data products and its CARFAX solution. The aggressive growth projected by IHS will come from new solutions aM creates along with deeper expansion into the overall dealer market. Look for an international play also for aM.
The acquisition is the third large automotive-related deal for IHS since 2013 when it acquired R.L. Polk for $1.4 billion (which included Carfax). In 2015, it acquired CarProof, the Canadian version of CarFax for $460 million. IHS also acquired Dataium, a small online tracking firm, in 2015.
Marrying Polk data to Automotive Mastermind’s artificial intelligent analytics engine is a brilliant play for IHS and positions the company to be one of the clear leaders — if not the leader — in the automotive marketing space.
Advancements in artificial intelligence and machine learning are transforming the advertising and marketing industries almost overnight. The ability to target buyers with automated micro-specific and personal messages is becoming more reality than potential. But while many companies talk about having AI capabilities, few have made the financial and technological investments into truly developing the technology.
Team Velocity, based in Herndon, VA, is another company to watch. It’s revenue is significantly more than aM’s and has a nearly 20-year history in the market. Current enterprise clients include FCA, Lexus, Bentley, Maserati, Ford, Lincoln, Quicklane, Audi, Volkswagen, and Ally Financial — in addition to thousands of dealerships using its mutli-channel AI-based marketing platform.
Other companies that have invested heavily in AI are Conversica and CarLabs — much of their investment focusing on the customer interaction and chatbot technology. Vast, began rolling out its CarStory Insights solution last month, a product that predicts when and at what price vehicles on a dealer’s lot will sell for. It’s the first of several products planned by CarStory, which has spent years building an AI and machine learning engine. (Disclosure: CarStory is the host sponsor for AUTOVATE 2017, an event owned by The Banks Report scheduled for December 7th and 8th in Austin, TX).
The AI revolution likely will spur a series of acquisitions over the next few years as companies that have valuable data but haven’t invested in AI will decide it’s time to exit.
Other companies, though, will look to acquire firms that have AI technology. We expect IHS’ recent move likely will motivate (perhaps, force is a better word) competitor Experian Automotive into making a move into the AI space sooner than later.
Under the radar, the two companies are competitive — especially in the automotive history report arena — with Experian’s AutoCheck and IHS’s CarFax.
Earlier this year, Experian acquired String Automotive whose software aggregates and analyzes data from multiple sources, including website analytics, inventory data and consumer purchasing data to help dealers evaluate their marketing efforts. An AI play is a logical next step for Experian.
INVESTMENTS IN ONLINE TRANSACTION FIRMS HEAT UP
In the third quarter, nearly $200 million was invested across six companies focusing on automotive online transactions. The six companies have raised an estimated total of $550 million since 2013. Add Carvana, which had raised $300 million before going public earlier this year, and the failed startup Beepi, which had raised $150 million, the total in the online transaction space invested since 2013 is close to $1 billion. (We did not include Carvana’s acquisition of Carlypso earlier this month).
Two of the six companies, Vroom and Shift Technologies, are online retailers trying to provide options to buyers other than the traditional dealership model. (Competitors Carvana launched an IPO in the second quarter while Beepi went out of business in December).
The other four firms — Drive Motors, AutoGravity, AutoFi and Fair — have created solutions that work in tandem with the dealership.
- Vroom announced a $76 million Series F financing round led by Israeli venture capital fund PICO Venture Partners and with the participation of General Catalyst Partners, L. Catterton and funds and accounts advised by T. Rowe Price Associates, Inc. With this latest round, Vroom has raised $295 million since its founding in 2014. The company acquired Texas Auto Direct in December 2015 and has steadily grown now selling more than 6,000 vehicles a month.
- Shift Technologies obtained a $38 million investment led by BMW iVentures, bringing its total raised to $110 million. Other investors in the latest round include DCM Ventures, G2VP, DFJ, Highland Capital and Goldman Sachs Investment Partners.
- Drive Motors in July secured $5.2 million in seed money in a round led by Bullpen Capital that included Y Combinator, Khosla Ventures, Perkins Coie LLP and Emagen Entertainment Group. Founder Aaron Krane started the company (launched out of Y Combinator) in 2015 to provide dealers with true e-commerce solutions that enable them to sell cars online. Asbury Automotive Group, one of the country’s top 10 dealer groups (publicly traded) has installed the solution on all of its stores’ websites. Drive Motors says it is now processing 1,000 monthly car orders for dealers, with more than $250 million in annual orders.
- Autogravity, an online mobile app that lets customers compare and select financing options, announced in the third quarter Volkswagen Credit invested in a Series B round of financing. Terms were not disclosed, but the amount was a reported $30 million. Autogravity, is a wholly-owned subsidiary of German automaker Daimler. Daimler Financial last year invested $30 million into Autogravity in a Series A round. That investment followed a $20 million seed financing from DA Investments (a Daimler investment arm) in 2015 when former Daimler Financial executive Andy Hinrichs founded the company. It now has more than 1,400 dealers and 500,000 users across 49 states on the platform.
- AutoFi secured another $10 million investment in August, bringing its total to $29.5 million since November 2015. Investors in the latest round, which was a Series A investment, included current partners Crosslink Capital, Ford Motor Credit and Lerer Hippeau Ventures. AutoFi likely will announce several partnerships with key automotive lenders in the next few months.
- Fair, Scott Painter’s latest venture, officially launched last month in California. It’s a fintech mobile solution that provides customers with ownership options without getting into a long-term loan or lease. Think micro-ownership. With a drivers license and bank account, customers can shop for vehicles based on a pre-qualified monthly budget.The entire purchase is conducted online and because it doesn’t involve credit or loans, much of the paperwork in the transaction is eliminated. Customers can drive the vehicle as long as they want and return it any time following a five-day notice. Also standard with every Fair vehicle is a limited warranty, routine maintenance, and roadside assistance.Painter, who founded CarsDirect and TrueCar, partnered with Georg Bauer, the president of Fair, who most recently was the managing director for Tesla Motors in Germany. Prior to joining Tesla, Bauer was CEO of Global Financial Services for BMW, and for Mercedes Benz Credit Corporation. Bauer, whose influence in the industry is far-reaching, has more than 30 years experience in automotive financing.The company raised $16 million in seed money last year, led by Javelin Venture Partners and included investments from several prominent venture funds such as Charles River Ventures, Foundation Capital and Sherpa Capital. The most recent investment, whose details were not disclosed, came from an ongoing Series A-1 financing led by BMW iVentures. Because Fair is handling the financing of the vehicles, it will have to raise a significant amount of capital as it expands into markets outside of California.
Amazon is casting a long shadow as the industry waits to see how the tech giant moves into automotive. Any move likely will involve an acquisition in the near future — our perspective pegs Vroom as being the best candidate. Carvana, Cars.com, Carmax or CarGurus also are possibilities.
Meanwhile, look for another OEM and Amazon announcement this week.
OTHER THIRD QUARTER ACTIVITY
- Carvana acquired Carlypso in August. The online startup generated more than $9 million in revenue last year. Chris Coleman and Nicky Hinrichsen started the company in 2014 as a peer-to-peer vehicle shopping and selling app. It later pivoted to becoming an online marketplace where wholesale and fleet management companies listed their vehicles for the general public. Carvana acquired the company for its data and ability to remotely appraise vehicles. Terms of the deal were not announced.
- Semcasting acquired Transparency AI, a data analytics firm data analytics firm that helps publishers measure the effectiveness of their digital advertising platforms in August. The acquisition makes sense for Semcasting, which did not have a direct play in automotive, but now will have a strong presence with several of the online publishers such as CarGurus, Autotrader and Cars.com. There may be other announcements regarding other platforms using Transparency’s solution forthcoming in the next few weeks. Transparency has used Semcasting’s address anonymization capabilities the last several months.
- Not an automotive-related deal, but Dominion Enterprises (parent company of Dominion Dealer Solutions) sold ForRent.com for $350 million in cash and $35 million in stock in September. The company also sold its Dominion Web Solutions (powersports and RV) property to Eurazeo and Goldman Sachs Merchant Banking Division’s West Street Capital Partners VII fund for $680 million this year. It will be interesting to see if Dominion uses the funds from the sales to invest in the Dealer Solutions group.
EARLY FOURTH QUARTER ACTIVITY
- PureCars acquired assets of Showroom Logic last week. It’s the first deal for PureCars since it was acquired by RayCom Media in late 2015 for approximately $135 million. Showroom Logic’s technology helps dealers manage their online and digital search spend. Terms of the deal were not disclosed.
- KAR Auction Services (owner of Adesa Auctions) last week completed its acquisition of TradeRev, whose Nth Gen Software Inc., a mobile app and desktop solution, enables real-time dealer-to-dealer vehicle auctions. In 2014, KAR purchased 50% of TradeRev for $30 million in cash. KAR acquired the other 50% for $50 million in cash and another possible $75 million based on performance over the next four years.
- CarGurus will go public in the next few weeks based on SEC filings. The company plans to raise $150 million with a valuation of approximately $1.5 billion.
2017 FIRST HALF DEAL RECAP (This is from our Mid-Year Report on M&A Activity)
Update to the Mid-Year data:
BAIN CAPITAL/MSX INTERNATIONAL
Bain Capital acquired MSX International in January for an undisclosed sum. Bain used a $323 million loan to help finance the deal. MSX provides technology solutions and training to dealers — mainly through its OEM relationships.
SHIFT DIGITAL/PUBLIC PENSION CAPITAL
Public Pension Capital (PPC Enterprises) is rumored to have made a majority investment in Sanctus LLC DBA Shift Digital earlier this year. Shift Digital was rumored to be on the market, including rumors — even from company employees — that it had been acquired by either investment firm KKR and Cox Automotive. Neither acquisition rumor panned out, but sources close to the situation confirm the private equity group recently took a majority position in Shift Digital.
Steve St. Andre, former head of Ford Direct, founded Shift Digital in 2008. The company acts as a middleman between the manufacturer and its dealers, designing digital marketing programs including selecting digital vendors manufacturers require their dealers to use and providing dealership training.
The reported investment from Public Pension Capital should position Shift Digital for significant future growth including acquisitions. It’s likely Shift will also look outside the automotive industry for growth — much like Reynolds and Reynolds is doing with the mortgage space.
Public Pension Capital
The investment firm has been relatively quiet since it was started in 2012 by former Kohlberg Kravis Roberts (KKR) executives Perry Golkin and Mike Tokarz. In June of this year, SEC filings indicate the firm has raised $640 million in investment capital. Their name popped up in early 2016 because they reportedly were looking at potential investments in the automotive space.
2ND QUARTER INVESTMENTS
WORK TRUCK SOLUTIONS/AUTOTECH VENTURES
Work Truck Solutions raised $5 million in a Series B Preferred Stock financing round in June. Autotech Ventures led the round which included investment firms Belle Michigan, Wakestream Ventures, Moneta Ventures and Golden Seeds. The investment will help the firm increase its marketing while also developing solutions for commercial truck dealers.
Alexei Andreev, managing director at Autotech Ventures, joined Work Truck Solutions’ board of directors.
Work Truck Solutions
CEO Kathryn Schifferle founded the company in 2012 with the first solution going live in 2013. This is an intriguing and growing company in a $130 billion industry that gets little attention. With more than 650 commercial truck dealers as customers, Work Truck Solutions claims to be the industry leader in the commercial truck inventory solutions market. Dealers from all of the major commercial OEM brands use its online inventory management platform. It also integrates body product information directly from body manufacturer partners onto dealer and distributor websites.
Other solutions include commercial automated data feeds to third-party sites; email marketing; dedicated websites; call management; CRM integration; used inventory.
Founded in 2015 by Alexei Andreev (formerly with Harris & Harris Group and Draper Fisher Jurvetson) venture capital firm and Quin Garcia Autotech Ventures announced in July it has closed its first fund raising $120 million from automotive manufacturers such as BorgWarner, Autoliv, Denso, Mahle, and Murata Manufacturing. Autotech is focusing its investments on startups in the ground transportation space with the goal of bring entrepreneurs together with larger companies. Autotech’s first six investments include startups in the trucking industry.
BIP Capital led a $3.55 million Series A round investment in Car360 (part of Ego Ventures) in June. Other investors included Mark Cuban’s Radical Investments (an existing investor) Service Provider Capital.
Car360 is the automotive division of an Atlanta-based technology firm called Ego Ventures. It was started by Bruno Francois in 2011, who went on Shark Tank and secured a $300,000 investment from Mark Cuban for his Cycloramic app. The app so far has been downloaded 200 million times. Car360 is located in the Atlanta Tech Village, one of the country’s leading tech hubs.
In 2015, Francois created the Car360 app. Positioning itself as an augmented reality company, the Car360 platform enables interactive visualization of cars and related data. Applications include vehicle inspections, merchandising/marketing and possibly sales interaction.
The app captures 240 frames per second and creates 360 degree 3D models of the vehicle and quickly uploads the images to numerous online market sites. The app uses a proprietary compression technology allowing for quick downloads. The app also provides a vin scanner.
In March, Car360 brought John Hanger (formerly of Contact at Once) on board to serve as CEO and to identify sales and market opportunities.
BIP Capital is a venture capital firm that focuses primarily in the Southeast and Atlanta areas. Mark Buffington founded it about 10 years ago. It’s launched four funds investing approximately $200 million in various early stage companies. It focuses on helping young companies develop internal processes that will position them for sustained success.
In April, it merged with Accelerant, a $25 million early stage investment fund.
ACV AUCTIONS/BESSEMER VENTURE PARTNERS
Bessemer Venture Partners led the Series B round totaling $15 million bring ACV Auction’s total raised to $22 million. Other investors included Rand Capital; Armory Square; SoftBank; and Tribeca Venture Partners — all existing investors.
George Chamoun, an early angel investor, was brought on in late 2016 to lead ACV Auctions, which was launched in 2015 to create a smartphone app that lets dealers buy and sell cars in 20 minute online auctions.
Bessemer Venture Partners
Bessemer possibly is the country’s oldest venture capital firm. It invests in companies at all stages and currently holds more than $4 billion portfolio. Bessemer also has accounted for 118 IPOs throughout its history.
2ND QUARTER ACQUISITIONS
TRADEMOTION/REYNOLDS AND REYNOLDS
Reynolds and Reynolds acquired Trade Motion, an online parts and accessories ecommerce platform in June. Terms were not disclosed.
TradeMotion, which includes the Parts.com platform, was started in 1998 and has grown to be one of the world’s largest online catalog of parts and accessories. Co-founder and President Shawn Lucas, is joining Reynolds and Reynolds as part of the acquisition.
The platform enables dealers and manufacturers to sell parts and accessories directly to consumers. It also integrates with eBay Motors and Amazon. Last year it transacted more than $500 million in business and counts more than 6,000 dealers as customers.
Reynolds and Reynolds will likely integrate Trademotion into its AddOnAuto solution, which provides dealers with a streamlined process for selling accessories. The purchase makes sense for Reynolds because TradeMotion expands its reach on the accessories and parts business — both in the dealer and the OEM space.
CLIFFORD THAMES GROUP/OECONNECTION
OEConnection acquired the Clifford Thames Group, a tech company that specializes in automotive data creation and management in the aftermarket space.
Clifford Thames, in business since 1948 when it started as a print company in the U.K., creates and manages data automakers, dealers and fleet operations need to maintain and repair their vehicles. The company operates in seven countries — England, U.S., Australia, Germany, France, Poland and India — serving automakers Ford, General Motors, Jaguar Land Rover, Hyundai, Renault and the VW group.
It has several solutions, including creation of parts catalogs, a web platform connecting fleets with repair shops and a financial management solution that also provides electronic invoicing and pricing validation.
Providence Equity Capital acquired a majority interest — approximately 70% — of OE Connection in July 2016, with Ford and General Motors each retaining 15%. The acquisition of Clifford Thames should expand OE’s international business along with growing its original equipment business. The acquisition more than doubles OE’s number of employees from about 320 to more than 700.
The Banks Report broke the news of Experian Automotive’s acquisition of data analytics firm String Automotive in May. Terms weren’t announced.
The acquisition cements a relationship that began in 2014 when Experian Automotive’s Auto Market DNA℠ demographic and behavioral information’s was integrated with String’s business intelligence platform, the Dealer Positioning System (DPS). String aggregates and analyzes data from multiple sources, including website analytics, inventory data and consumer purchasing data to help dealers evaluate their marketing efforts. The DPS solution provides dealers with data-based recommendations on how to maximize those efforts. It has been integrated with Experian’s data insights solutions.
Founder Ken Kolodziej and the team stayed on with Experian Automotive. The String brand name was eliminated, however.
DOMINION WEB SOLUTIONS/EURAZIO, GOLDMAN SACHS MERCHANT BANKING
Last week, Dominion Enterprises (which is owned by Landmark Media Enterprises) announced it is selling its web solutions group (DWS) to Eurazeo and Goldman Sachs Merchant Banking Division’s West Street Capital Partners VII fund in a deal that is slated to close next month.
The purchase price is a reported $680 million. Sources close to the deal tell us the valuation was nearly 15x EBITDA. The buyers are each acquiring a 50% in the company.
DWS is an online classifieds and marketing solutions provider for recreational, commercial and power sports dealers. According to the press release announcing the deal, DWS has 6,700 dealers as clients, with more than 4 million unique listings driving more than 7 million average unique monthly visitors across its platforms, which include RV Trader and Cycle Trader along with other Trader properties.
It is an impressive deal for Landmark and likely is a precursor of more moves involving Dominion Enterprise properties for the Norfolk, VA-based media giant. The deal could indicate Landmark is planning to divest the Dominion properties, including its Dealer Solutions group, or it could use the money from the deal to fund more acquisitions. Either strategy makes sense, especially on the automotive side.
Eurazeo is a European private investment firm listed on the European stock exchange Euronext Paris. The firm opened an office in New York in September 2016, which is led by Virginie Morgon, Deputy CEO of Eurazeo and President and CEO of Eurazeo North America.
The DWS deal is the company’s first U.S. acquisition.The goal for the U.S. office , according to the release, is to “identify, invest in and enable the growth of high potential U.S. mid-market companies in the consumer goods and business services sectors, as well as support the international development of Eurazeo’s portfolio companies.”
Whether Eurazeo has its eyes on any automotive-related targets remains to be seen. But it could be an intriguing new investment player in the market.
The other buyer, West Street Capital Partners, is a new fund launched a few months ago by Goldman Sachs. The target last July was to raise between $5 billion and $8 billion, and as of January had raised $4.5 billion.
CARCO TECHNOLOGIES INC., d/b/a DRIVIN/KAR AUCTION SERVICES
On April 19th, Kar Auction Services (owner of ADESA Auctions) acquired DRIVIN in a $43 million all stock deal.
DRIVIN provides business intelligence that helps dealers, via an online mobile platform, manage the buying, selling and predictive pricing of their used vehicle inventory. The insights are gleaned from approximately 35,000 automotive retail, pricing, registration and other market and economic data sources that generate more than 450 million data points.
It was a short run for DRIVIN. The company was founded in 2015 by Groupon co-founders Brad Keywell and Eric Lefkofsky, along with Kayne Grau, former Cars.com CTO and Justin Mahlik.
The group, which included board member and former Cars.com president Mitch Golub, raised more than $17 million in two rounds from Columbus Nova Technology Partners and Lightbank. The company also raised $6.5 million in debt financing last year with Silicon Valley Bank.
Grau, who was the company CEO, will continue as president of DRIVIN at KAR with Malik continuing as COO.
Kar Auction Services sees the acquisition as providing it with key data science capabilities that it plans to leverage into more products and services. The move also takes out a potential threat to its auction business. DRIVIN is just one of several dealer-to-dealer online platforms created in recent years to help dealers bypass the used vehicle auction process.
Kar also invested in TradeRev, acquiring half of the company in 2014 for $30 million and recently extended a $15 million line of credit to the company. TradeRev, based in Toronto, lets dealers launch and participate in one-hour online vehicle auctions with live, competitive bidding. Potential buyers are notified of new auctions via text, mobile and email alerts, and sellers receive bids representing true, real-time market value for their vehicles.
Meanwhile, last year, Reynolds and Reynolds made a significant investment in Appraisal Lane, another online platform on which dealers can upload vehicles. Other dealers can decide whether to buy the vehicle. If not, Appraisal Lane will purchase the vehicle and find a seller.
AUTOMATIC LABS/SIRIUS XM HOLDINGS
In April, Sirius XM Holdings Inc. announced it had acquired connected car platform Automatic Labs for $115 million.
Automatic Labs was founded in 2011 by Jerry Jariysunant and Thejo Kote. Kote served as CEO till August 2016, when he left the company (he was still on the board until the acquisition).
The product is an adapter (also called a dongle) that plugs into the OBD II port in the vehicle and streams data about the vehicle to the cloud, which can be accessed using a mobile app.
Through last year, the company had raised more than $32 million in three investment rounds, the most recent coming in 2015 led by insurance provider USAA. CDK Global participated in the $24 million capital raise.
Despite our heady projections about the connected dongle space becoming a huge market (see link in prior sentence), Automatic never really found its bearings in the consumer market. A year ago, it laid off 28 employees and pivoted toward focusing its efforts on solutions for the insurance industry and companies managing large fleets.
The consumer space for connected adapters is crowded and may have shelf life of 10 or 11 years. The solutions are perfect for today’s used vehicles, but as new vehicles roll off the line already connected to the Internet, their usefulness will disappear as today’s used vehicles cycle reach the end of their lifespan.
Other companies in the space include Vinli (Cox Automotive is an investor) and Spireon (which we think is a prime acquisition target this year).
This is an intriguing acquisition for Sirius, which is the world’s largest radio Including satellite radio) company. The company has provided little guidance on how the purchase will impact its earnings moving forward, which indicates it is more of a data play and less a move about increasing revenue or bottom line earnings. The deal probably indicates Sirius is looking to make bigger plays in the connected car space, and believes Automatic will help it learn more about it.
WORLD DEALER/STREAM COMPANIES
Stream Companies, an integrated marketing agency, acquired World Dealer, a Pittsburgh-based dealership marketing firm. No price was given. Following the acquisition, Stream has added some key positions in its automotive business, so look for additional growth this year.
World Dealer was founded in 2000, by Paul Accinno,who is now Executive VP of Dealer Development for Stream. The company focused on integrating digital marketing with traditional advertising to help dealers create seamless messaging across all platforms.
Stream is one of the largest marketing agencies in the Philadelphia area with solutions for numerous industries. The acquisition of World Dealer adds several key agency accounts along with more than 100 dealer websites to its Full Throttle platform.
XTIME MARKETING SERVICES/PATRICK O’RAHILLY
In an unannounced and small deal, Cox Automotive recently sold Xtime Marketing Services to Pat O’Rahilly, who had been president of Aspen Marketing. XTime Marketing had been the former Customer Focused Marketing (CFM) marketing firm acquired by DealerTrack in 2013.
It will be interesting to see whether O’Rahilly has more moves planned in the future.
2ND QUARTER PUBLIC OFFERINGS
Carvana went public at the end of April (Carvana’s recent IPO ) and had a rough start early with the stock price dropping from $15 to the $8.50 neighborhood the first week. It rebounded to $23.70 by the end of June but has steadily dropped to just over $15 the last several weeks. Revenue in its first quarter (second quarter of the year) of trading jumped 142% as the company has added seven markets in the quarter with another nine planned. Losses, though, doubled from last year to $38.9 million in the second quarter.
At some point, the company will have start showing it can make money — but for now, it is focused on expanding its markets. Executives believe profitability will come from scaling quickly. But it only has a finite amount of cash to burn, so it may be a race against the clock to see whether they can turn a profit before the cash runs out.
It just announced the acquisition of Carlypso, an online startup that began as a peer-to-peer retailer in 2014, but pivoted to becoming a data science company. Carlypso’s technology is able to take data from numerous sources and, using machine learning and data analytics, create valuations of used vehicles without ever seeing the vehicle.
Cars.com, executed its spin off from TEGNA on June 1. For the most part, its stock price remains steady. It jumped 8.7% on its first day and reached a high of $29.47 a couple of weeks later. Now it’s in the $25 neighborhood where it has hovered for several weeks. Nevertheless, investors had hoped for better returns initially.
Revenue for its most recent quarter came in at $156.6 million — flat with 2016’s second quarter. Net income was down from $42 million to $24.8 million — due to the spin off costs and new capital structure of the company.
The management team reaffirmed its guidance for the rest of the year calling for 0% to 2% revenue growth with adjusted EBITDA of $61.2 million. Growth is expected to rebound in 2018. But that may come through acquisitions.
Cars.com will be a buyer this year, and what it acquires will indicate which direction the company plans to go in the near future. It has cash and several intriguing targets in the market place that could add both revenue and profitability immediately.
NOTES OF INTEREST
- AutoData U.K. (Solera) NOTE: Although this deal was “completed” early in the first quarter, Great Britain’s Competition and Markets Authority (CMA) conducted an investigation determining the acquisition likely would lessen competition among automotive service repair and maintenance information platforms. In order to complete the deal, Solera is offering to sell its E3 Technical Business (part of Carweb) to the Haynes Publishing Group. The CMA has yet to decide whether the proposed move is enough to remove competitive concerns.
- NOTE: Although it’s not included in the second quarter data, the big news during the quarter was CDK Global’s pending acquisition of dealer management system competitor Automate. The Federal Trade Commission is currently reviewing the deal and recently asked for more information, which will delay the closing till later this year or early in 2018. We’ll include it in our M&A data once the deal closes. Although, the two antitrust lawsuits filed this year against CDK Global (and Reynolds and Reynolds) and the news this month that the FTC is investigating whether a Data Exchange Agreement they signed in 2015 constitutes collusion, has created questions of whether the FTC will approve the acquisition.