This is Section Three of our post 2015 NADA Report. In this section, Cars.com, DealerSocket, Solera Holdings and ELead1One are covered.
The entire report, which we will be published in different sections is now over 10,000 words. We decided to break the report into different sections to make it more readable after talking with several subscribers.
- Section One covers vendor acquisition activity providing a review of the record breaking 2014 and a preview of what to expect the rest of the year. 2015 Report: Section 1 – Vendor Acquisition Activity
- Section Two covers CDK Global; DealerTrack Technologies; Cox Automotive; Reynolds and Reynolds; Dominion Dealer Solutions. 2015 NADA Report: Section 2 – Vendor Analysis
- Section Four will provide shorter analysis of smaller firms on The Banks Report 2015 Watch List.
- Section Five of the report will analyze the leading trends this year.
Last year was a year of change for Cars.com. As The Banks Report predicted in late 2013, Classified Ventures, Cars.com’s parent company. was sold for approximately $1.8 billion in August 2014. (The Banks Report also broke the news in March 2014 that Gannett Co. would be the buyer).
Gannett, who already owned a sizable stake. bought out the remaining partners in Classified Ventures: The McClatchy Company, Tribune Media Company, Graham Holdings Company (Washington Post) and A. H. Belo Corporation, all of whom had been part of the original joint venture that created Cars.com in 1998.
Cars.com’s total valuation in the deal was $2.8 billion. (Medial reports pegged the valuation to be at $2.5 billion but reworked affiliate contracts with the other four JV participants in which they will pay higher wholesale rates for leads the next five years pushed the total valuation to about $2.8 billion.)
Meanwhile, as expected, Mitch Golub, who had led Cars.com since its inception, announced his retirement (he officially retired March 3 of this year). As Cars.com’s first employee, he grew the company to more than 1,300 employees and between $550 million to $600 million a year in annual revenue.
Classified Ventures’ CEO Dan Jauernig also retired. Gannett then named Cars.com’s long time senior vice president of sales Alex Vetter as its new CEO (he held the executive vice president and COO position for two weeks prior to being named CEO).
The early returns for Gannett have been strong. In its year-end earnings call with analysts Gannett indicated its digital revenue for the third quarter jumped 77%, in part driven by Cars.com. Gannett also owns CareerBuilder, the nation’s number one job site.
Meanwhile, Gannett informed investors in August that it planned to split the company into two publicly traded companies, separate the publishing division from the broadcast and digital division. The split should happen about the middle of this year. Gracia Martore, Gannett’s current CEO, will lead the new broadcast and digital company, which has yet to announce a name. The publishing unit will keep the Gannett name.
The new broadcast and digital company will start with a $750 million share repurchase program while paying investors a $0.56 quarterly dividend. The new Gannett publishing company will have a $150 million share repurchase program spread out over three years and should pay investors a $0.32 per share dividend.
RepairPal Certification: The RepairPal certification tool was Cars.com’s only product announcement at this year’s NADA convention. Even though the acquisition was completed, the Gannett split still is in the works, and, coupled with the leadership transition, the fairly quiet NADA was expected.
Yet the RepairPal certification gives a strong indication of where Cars.com’s attention will be in the near future — and that’s the service department.
As part of the certification process, dealership service departments will be evaluated every 90 days in four areas:
- Technical Assessment: OEM-certified technicians
- Minimum Warranty: at least a 12 month/12,000 mile warranty
- Customer Satisfaction: minimum number of Cars.com Service Reviews with an overall 4-star rating in sales or service
- Price Guarantee: pricing that falls within the RepairPal Estimator
When a dealer earns the new certification badge, it will be prominently featured on Cars.com and RepairPal.com and can be used offline in their own marketing materials.
Acquisitions. Two words — cash and freedom, which Golub never had, means Cars.com will be a different, and more aggressive company once the split with the print division is complete. (Golub, essentially, was handcuffed by a complicated joint venture set up, whose board acted cautiously in the marketplace.)
However, don’t look for Cars.com to make any significant moves until the Gannett split is completed — probably late in the second quarter. But once the separation is completed, look out. It likely will have a war chest of cash that it will use to begin making acquisitions.
There are any number of moves Vetter and company could make, but it appears for now that the service repair arena is where it will focus. But it could surprise the industry and adopt a similar acquisition strategy to what Cox Automotive has had.
Challenges/Questions. Late last year, activist investor Carl Icahn took a 6.6% position in Gannett saying he agreed with the strategy of splitting the company. But in January, he moved to an activist position, reportedly informing Gannett during a dinner with Matore of his plan to seek two board seats on the new media company.
Icahn expressed concern that both of the new companies would be attractive takeover targets once the split occurred. He wanted specific governance rules in place that would prevent the boards of both companies from adopting “poison pill” strategies that he felt would hurt shareholder value.
It looked like an ugly proxy fight was looming, but earlier this month, Icahn withdrew his board nominations after Gannett agreed to several of his demands — for the publishing company.
From our perspective, it’s interesting that the new rules apparently will not apply to the new broadcast and digital company. The point is, this will be an ongoing story for the next couple of years, at least. There are any number of scenarios possible including the new broadcast and digital company itself being split into two separate entities (a spinoff of Cars.com?) in the next year or so — or it being acquired.
What does all this mean for dealers? Not much now other than potentially higher rates (often happens to look good for new owners or investors).
It probably will roll out more aspects to RepairPal this year, meanwhile.
Nearly 14 years old, DealerSocket has become the top CRM provider servicing about 4,000 new car dealerships. Until last year, it was a quiet company with 450 employees. Founder and CEO often would tell The Banks Report that DealerSocket was not for sale (although it was an attractive target for several years, and the subject of many rumors). Rather, Ord claimed the company was a buyer.
It turns out, both scenarios were true. Last spring, The Banks Report broke the news that Vista Equity Partners had taken a majority position in DealerSocket when it acquired the interest owned by a private equity company which we believe was backed by the Van Tuyl organization.
Meanwhile, DealerSocket, over a five week period this this year, announced two significant acquisitions: Wisconsin-based website vendor DealerFire and FEX, a DMS supplier serving pre-owned independent dealerships.
DealerSocket made no product announcements at the NADA convention this year. Instead, it spent the time introducing the DeaerFire team and acquisition that it announced earlier in January.
DealerSocket is a company that bears watching. The investment from Vista Equity provides it with the wherewithal to significantly expand its reach in automotive retail. It’s a major player now.
Any questions — and we had several — or speculation about a possible relationship with Reynolds and Reynolds caused by the investment from Vista have been put to bed now that Vista exited the investment position it held in Reynolds (in late December).
The DealerFire acquisition gives it a legitimate website solution with access to about 700 of DealerFire’s 1,000 customers that aren’t yet on the DealerSocket CRM platform.
The acquisition of FEX is intriguing. It positions DealerSocket to expand what has been a growing business with independent dealerships (nearly 500 independent dealers use DealerSocket’s CRM). It also raises the question as to whether there is a play in the DMS space with franchise dealers.
Probably not, because doing so could create challenges from an integration perspective with other DMS vendors. That integration is critical for DealerSocket — unless it decides to make a bigger move.
FEX does, however, have several solutions, including a lending solution that possibly could be adapted for franchise dealers. There are numerous ways DealerSocket can leverage this acquisition and what it rolls out next might indicate what its strategy will be the next two to three years.
DealerSocket recently announced an integration with video platform Flick Fusion — don’t be surprised if an acquisition is announced sometime later this year. That’s the path many of these integration partnerships end up taking.
Meanwhile, keep an eye on Vista Equity. The Dealersocket play could be a precursor to bigger deals down the road.
Solera Holdings, Inc. is not a familiar name to many in the automotive retail space. But it’s going to be.
Tony Aquila founded Solera in 2005 to help companies better manage automotive insurance claims. That vision has expanded to where Aquila wants to create a digital platform that brings together insurance companies, OEMs, dealers and service repair shops and ultimately the end user — the buyer — to make managing the entire life cycle of the vehicle easier.
In 2006, Aquila, along with private equity firm GTCR Golder Rauner acquired Automatic Data Processing’s (ADP) Claims Services Group. Solera went public on the New York Stock Exchange (SLH) in May 2007.
Solera is in approximately 70 countries today and manages more than 200 million transactions annually and generates nearly $1 billion in annual revenue. The company has the biggest collection of automotive service and repair data in the world.
Solera’s growth strategy has been aggressive acquisitions and it appears Aquila plans to continue that strategy. He made a big play in the U.S. in 2013 with an investment in, and ultimate acquisition of AutoPoint.
- In July 2013, Welsh Carson Anderson & Stowe (WCAS) acquired Service Repair Solutions for more than $500 million. SRS is the parent to AutoPoint (MPi) and Identifix. (Solera was one of the companies that lost out on the bidding to WCAS for SRS.
- Solera Holdings created a joint venture in October 2013 with WCAS to purchase an equity position in SRS. That deal culminated in Solera’s outright acquisition of AutoPoint, which is headed by Richard Holland. AutoPoint is the former MPi company that was founded by Les Silver.
- Solera also acquired Service Dynamics earlier this year and is integrating that company’s online service scheduler with AutoPoint’s solutions.
2015 NADA Product Announcements.
Solera’s AutoPoint company made three product announcements at NADA this year.
OwnerCare. This is a digital report generated for customers providing information about their vehicle’s health, including a precise service estimate and clarification of the importance on recommended services. The customer can simply click through their custom report to approve services or learn more about the recommended repairs. It eliminates phone tag and streamlines the service recommendation education and approval process for both the dealer and the customer.
WelcomePoint. This solutions helps streamline the service lane greeting and repair order write up process. With a couple of clicks on the service advisor’s device or computer, all of the customer’s relevant information including safety recalls, warranty and prepaid maintenance information along with a mileage-based service menu. It also pulls appointments created in the DMS and converts them to actual repair orders. The service advisor can then perform a walk-around inspection on the service drive and any noted items added will be populated on the RO and into MultiPoint, AutoPoint’s digital inspection platform.
StatusPoint. This is a web-based dashboard available on any Internet-enabled device that shows the customer exactly where the vehicle is in the service process. StatusPoint leverages the MultiPoint shop flags and allows each dealer to create a tailored mapping of the flags to customer-facing statuses. The MultiPoint shop flags change as the vehicle progresses through its service process, and the status is immediately reflected for the customer to view on the StatusPoint dashboard.
The parent company, Solera, has gotten a bit dinged the last couple of months by investors. Within the last year, it’s stock price had been as high as $69 a share but now is trading in the $51 range. A lot of acquisitions with little to show for it in the way of profitability at the moment. Aquila is preaching patience, while letting the Street know the acquisitions will continue. Of course, pressure on business units in Russia and Brazil isn’t helping.
There likely will be a couple of more acquisitions, at least, this year in the U.S. of service-related companies/solutions that can be integrated into AutoPoint. Meanwhile, Solera is going to be — probably already is — a significant player in the automotive retail space.
But, AutoPoint has challengers now. XTime has a war chest behind it courtesy of its new owner, Cox Automotive. Meanwhile, DealerTrack is getting into the service lane with is purchase of ASR Pro last year. And Cars.com will be a formidable by the end of the year.
Let’s just say, it’s a good time to own a company that provides solutions to dealership service departments. But if investors get too antsy, don’t be surprised of Solera explores a sale to private equity in the next year.
ELead1One is the second leading CRM provider to dealerships, but with approximately 7,000 clients using at least one of its products, it’s clearly one of the top vendors in the space.
The company was founded in 1985 by Hugh and Judy Hathcock, who baked and delivered tins of cookies to dealerships to give to their customers. Out of that company grew a full service CRM company with about 1,500 employees and a state of the art call center/business development center headquartered in Valdosta, GA.
Today, the company is a subsidiary of Data Software Services LLC, which was created by Hathcock to help with the financing of investments in technical innovations.
2015 NADA Product Announcements
ELead1One made one product announcement this year. As are several other firms, ELead1One is getting into the service department space.
Service1One. The hand-held mobile tablet solution automates all aspects of fixed operations processes – from the moment an appointment is scheduled until the repair order is complete. Features include:
- Multi-channel Online Service Scheduler
- Fast and Efficient Lane Management Application
- Paperless Multi-point Inspection Process
- Includes Consumer Service Work and Payment Authorizations Tools
- Full Integration with ELEAD CRM, AutoPilot, and ELEAD Loyalty App
- Full Integration with All Major DMS Systems
ELead1One is a family owned business, but it has reached a level where it’s big enough to make an acquisition difficult. Very few companies in the automotive retail space have the financial wherewithal to acquire the company.
There’s no indication the company is for sale. In fact, it’s probably generating a nice profit for the Hathcocks who may not have any desire or reason to sell. Furthermore, unless a private equity company made an offer, the only vendor in the space that has a reason or need to consider it is CDK. In short, there aren’t a lot of buyers lined up at the door.
Meanwhile, ELead1One hasn’t really engaged in the acquisition game itself. Like DealerSocket, the company was built from the ground up without a lot of outside investment or acquisitions of other firms. That’s an accomplishment in today’s environment.
But the question is, can ELead1One continue to contend with the big players in the space as a private and family-owned business? VinSolutions has the power of Cox Automotive behind it; and now, DealerSocket has Vista Equity.
Of course, having a behemoth as a parent company hasn’t helped CDK’s CRM product or Reynolds’ Contact Management solution gain significant share in recent years.
Our projection is that ELead1One doesn’t see any significant changes this year.