AutoTrader has been extremely acquisitive lately, buying Kelley Blue Book, HomeNet and vAuto in the past 18 months. Add to that list VIN Solutions, a software company offering an array of marketing solutions to dealers. The deal was announced last week and is covered nicely here.
It’s difficult to know exactly why AutoTrader has been so active in M&A lately, but two considerations are getting the most attention:
- “One-stop shop”: AutoTrader wants to own specialized product lines in each dealership vertical (new sales, used sales, finance & insurance, service and other smaller categories). Dealer principals and general managers often complain about the inefficiency of having multiple vendors. With AutoTrader’s rapid expansion into categories beyond car sales, it’s a safe bet that every item on a dealer’s wish list can be addressed through a call to an AutoTrader rep.
- Preparation for an IPO: I’m not as convinced on this point, but it’s a frequent comment in the media coverage so it warrants discussion. Often, M&A prior to an IPO is for companies seeking to prove they are “big enough” to go public. For example, a company with $50 mm of revenue acquires a company with $10-$20 mm of revenue. That’s not the case here. Based on a recent presentation by AutoTrader CEO Chip Perry, covered here, AutoTrader’s revenues in 2011 will exceed $1 billion. This represents a 50% increase from its reported 2009 revenue of $626 million. That is to say, AutoTrader is fine on size.
However, there are non-size rationales for pre-IPO acquisitions. For AutoTrader, perhaps public investors will have a clearer sense of AutoTrader’s long-term strategy with these recent deals. Similarly, public investors may now understand which companies are the right points of comparison for AutoTrader – large, diversified automotive software companies like ADP and DealerTrack. AutoTrader can no longer be categorized as a risky dot com company facilitating car sales.
A couple final notes on the deal and AutoTrader’s future:
1) There are still areas where AutoTrader is lacking, including the service and repair side of the dealership.
2) Consistent with previous acquisitions, AutoTrader intends to maintain VIN Solutions as an independent subsidiary. This may be practical in the short term, but with each of subsidiary having a large sales force, committing to this decentralization in the long term will undermine the concept of a “one-stop shop.” There are several other large software companies in the automotive space that have taken this approach to acquisitions, and the result is internal miscommunication and inconvenience for end customers.