The $585 million sale yesterday of Apartments.com to the CoStar Group potentially could be one of the biggest acquisition stories in the automotive retail vendor space this year.
The reason the sale of an apartment lead-generating company is so important in the automotive retail space is because of what it means for Cars.com.
Prior to the sale, Apartments.com was owned by Classified Ventures, Cars.com’s parent company.
1. Valuation. Apartments.com sold for $585 million – approximately 5.5 times revenues. Based on our estimates, Cars.com generated about $550 million in revenue last year which means, using Apartments.com’s numbers, Cars.com’s valuation is in the $2.8 billion to $3.1 billion range – which is what we wrote in September of last year.
2. Leadership. This is an interesting question because there essentially are two chiefs now for one company – Dan Jauernig, the CEO and President of Classified Ventures and Mitch Golub, the President of Cars.com.
It’s likely that situation will not continue for long, so look for one of the two to leave. (We hear both are held in high regard in the investment and automotive communities.)
3. Strategy. As of right now there are no indications that Cars.com would be put on the market but we think that is the logical outcome sometime this year. Classified Ventures is owned by four media companies including the Gannett Co., The Tribune Co., A.H. Belo Corp. and McClatchy Co. In total, the four firms will receive about $480 million from the sale with the rest going to Classified Ventures.
Graham Holdings’ (previously The Washington Post Co.) relationship with Classified Ventures has ended or is close to ending with the acquisition by Jeff Bezos.
Cars.com has probably two options, though. Sell, or solicit investment from a large private equity group (think T. Rowe Price, Blackstone, KKR or Carlyle) and use that investment to make a big acquisition.
We wrote in September that Edmunds or DealerTrack could be potential targets. However, since then, we’ve become convinced Edmunds is not for sale and with DealerTrack’s acquisition of Dealer.com, they’re probably off the table also.
It is likely Cars.com is an attractive acquisition for one of the larger private equity firms. According to Bain & Company’s recent Global Private Equity Report, private equity companies are sitting on more than $1 trillion of cash – an increase of 12% last year. That increase was caused by an 11% decline in the number of buyouts in 2013 as asset prices began to jump. Bargain investments that were more common in 2011 and 2012 began to disappear last year. There also is speculation that Gannett also could buy out the rest of the partners.
The point is, there is a lot of cash and private equity firms are under pressure to find places to invest that money. Look for Cars.com to be one of those places — whether it’s an outright acquisition or a large investment, doesn’t really matter. Either would put Cars.com in a good position to execute bold strategic initiatives that have been missing in recent years due to what some observers say is Classified board’s hesitation to pull the trigger on a big deal.