AutoTrader.com Agrees to Buy HomeNet Automotive

[Joe Pistell]

A New Spin on the AutoTrader Buy-a-Thon

Why in the world is 'Trader (Cox Enterprises) buying up gigantic Automotive Internet properties like KBB.com, vAuto and HomeNet? Obviously, sellers are driven by possible Tax law changes, but, what's motivating the "fat finger" at 'Trader HQ?

It's very possible that Goolge's going to eat their lunch and render them a 2nd class citizen. It's happening in other verticals, take a look...

http://forum.dealerrefresh.com/f21/new-spin-autot...

 

[LarryBruce]

Joe in my opinion the motivation of the "Fat Finger" is pretty clear. Cox has tried selling ATC before with no luck. This buying frenzy is a rollup of top line revenue to get to an IPO.

ATC has no strategy or idea what they will do with these companies except raise rates enough to get a revenue rate over $3 billion, IPO and exit.

No doubt Google has a habit of taking the inefficiency out of consumers searching for relevant items and content and that the car finding process may be on their radar, this maybe the driver behind the push to go public but make no mistake these acquisitions are a part of an IPO strategy.

 

[Joe Pistell]

Larry,

I spent 7 years as a wall street stock trader. The financial process you are describing is called a Rollup. Your idea has merit, but, like my idea, we're just taking our best guess.

ATC is not buying the properties, Cox Enterprises is. Cox Ent. is privately owned MEDIA EMPIRE that includes newspapers, television, radio, cable television, CEllular Service and other businesses. ATC is one small part of the Cox Empire. Cox has no active history of rollups, but, the primary owner of Cox Enterprises is Anne Cox Chambers and she's almost 90. A IPO from the Cox Empire would be historic indeed.

If your roll-up scheme is true and Cox is looking to go public, then this isnt the only buy Cox has made. You'll get confirmation in seeing Cox buy up many other smaller properties to improve it's diverse portfolio. If you then see other buys, you have to factor in the Tax bonus sellers are getting that would fuel this wave of acquisitions.

That being said, if this is a Rollup, it sure is a strange one. Rollups often bring many small players together to share common resources to inflate profits. I don't see a lot of overlap as all three are really unique models.

Lastly, the Cox's are no different than Mr Biter. The tax impact that helped force Dale P and Jesse B to sell is what the Cox family will be dealing with.

If I were called out to make a bet, given the Cox history and it's gigantic empire, I see this as further diversification in the massive Cox Empire.

 

[Innocent Bystander]

@Joe, a private equity firm acquired a 25% interest in ATC earlier this year, and provided the capital that has funded these acquisitions.

While COX may not be looking to go public, a spin-off of ATC isn't out of the question in 3-5 years.

 

[LarryBruce]

@Joe

Innocent Bystander, whoever that may be, is providing that key piece of the puzzle.

While I am sure Cox as no plans of going public private equity doesn't get involved at this level without a clear exit strategy, in this case IPO.

You’re right this isn't your typical Rollup but it is one just the same. Time will tell if they can execute to get the right multiples for exit.

To get them they will need to keep expenses low and raise top line revenue IE there is a price hike coming and no innovation or value to go with only new sales spin.

It just is what it is and dealers need to prepare now for it and diversify.

 

[Joe Pistell]

Larry writes:

"...While I am sure Cox as no plans of going public private equity doesn’t get involved at this level without a clear exit strategy, in this case IPO. "

Larry, Look at how you lock yourself into a position with no facts what so ever. C'mon Larry, this is tea-leaf reading. This is conjecture. Where in the hell does conviction come into play here? All anyone has is shallow "arm chair QB" evidence to connect the dots, but somehow you have locked on to your "best guess" and are treating it like gospel.

 

[Joe Pistell]

Larry writes: "...It just is what it is and dealers need to prepare now for it and diversify."

Larry, could it be that you sell something that fits a dealers need to diversify?

We all know it's Yes.

Is it possible your opinion gets colored by your business mission? I am sure you'll reply that your beliefs were not shaped by your business model. I'll roll with you on that. Here is a little intellectual test.

To arrive at a "best guess" decision you must fully explore the opposite side of the coin.

Based on what little evidence that we all see, construct an outcome where the acquisition of these properties fits the Cox Enterprises business history and it's profile. Also, list all joint ventures that Cox has made in the last dozen years AND list out all joint ventures that have produced an IPO.

Larry, I know you won't produce this. All I am saying is you nor I have no idea if this will end in an IPO. Even if it is designed to become an IPO, it won't become one unless the stock market is healthy. And what if it did become an IPO in 3-5 years, Google maybe "so last year" by then!!

 

[LarryBruce]

@Joe, What are you talking about!? How am I locked into anything? Joe how the exit for the investors in ATC is all just mental masturbation, the exit means nothing to either of us. What is going to be happening over the next few months or years to get to that exit does mean a great deal to dealers however.

Joe I give the people in this room a lot more credit to be able to read what I write look at their own situation and view of the facts and make their own decisions. I don't think anyone is taking my writing as gospel. We’ll know in the next few months where my reading or the “Tea Leaves” was right or wrong and you know what in either case it won’t change a thing.

I have been very transparent on my current business model; it has nothing to do with Homenet, VAuto or KBB. Although I have said dealers should look at alternatives to both Homenet and VAuto (Diversify). I have said and still maintain that dealers should look at eBay as an alternative to ATC, the customers there are higher quality and more engaged among other things and my business model has nothing to do with eBay or listings in general.

I have however been a long time critic, longer than you have been in this business Joe, of companies that work diligently to get between the dealer and the customer 3rd party lead companies in particular, but for the last 4 years ATC has fallen in that bucket.

I have shown with UserTesting.com that ATC doesn’t have near the footprint they would have a dealer believe they do and that a dealership can and should compete with them online particularly in their local market. My new business absolutely could be an alternative to ATC along with eBay as I have described above. I will be happy to say it so you maybe will feel better:

“Yes I believe a dealership spend with my company would produce more than a spend with ATC and I would show them data that would support them moving that spend or a portion there of to my company”

Feel better now?

I have been following movements of ATC for some time now but I wouldn’t say I have all of what you are describing above I would say as a hobby I have been pretty accurate over the years at connecting the dots to what might happen and I have been more right than wrong. IPO or not it is ATC’s motivation that’s in question not their exit.

ATC do you intend to grow by making good innovative products that we are happy to pay for?

OR

ATC do you intend to leverage these companies into a higher price point and margin to get to a goal of exit whatever that may be?

Their actions over the next 12 months will tell the tale, I bettin on the latter.

 

[Dennis Galbraith]

I have not talked to executives at AutoTrader.com in the past six months, but here is what is not speculation:

1. AutoTrader.com and Cars.com are not just websites, they are listing services. They spend many millions of dollars putting the inventory of their customers on other sites for added exposure. Getting AT listings back on kbb.com will mean more phone calls, emails, and walk-in traffic for their dealers. Did they pay too much? What are the other parts worth? I don't know those answers. What I do know is they bought more audience. As to the timing, Kbb was going to sell to someone.

2. At Cars.com, I paid DMI to do what AutoTrader.com pays HomeNet for. I doubt AT has very many suppliers they are more dependent on. The technology integration is so complex it is not easy to switch vendors. It would be scary for AT to watch someone else buy HomeNet.

3. Neither AT nor Cars.com have ever been satisfied with their ability to help dealers help themselves. Both models are participatory, and most of their dealer customers don't get but a fraction of the value from the service that they could or should. Poor merchandising lowers the rate of leads per VDP. I oversaw the dealer training effort of Cars.com, and it's pretty obvious Dale and vAuto helped dealers get more value from their listings than my team or the AT team ever did.

I don't know what new products or new financial structures may come of this, but these are the kinds of businesses a company like AT would like to own. It's not the same as vertical integration, but some of the justification is similar.

For those looking for a way to hold AT accountable on rate, cost per VDP is the answer. You absolutely must know your current cost per VDP before deciding to add features, scale back, or buy alternative listings solutions. In most regions, two of the best buys are AT Featured and Cars.com. I have yet to find a dealer who received a marginal cost per VDP from going to Premium that was as good as Cars.com or Featured. Premium is a good buy in many cases and not in others, but AT is not going to crunch the numbers for you.

 

[Jeff]

Dennis,

A dealer can't accurately compare the cost of VDP's between ATC and Cars.com. Cars.com counts their VDP's much differently and over states their VDP's in relation to how ATC counts theirs. What is your suggestion to be able to compare these two side by side objectively. Dealer are confused on this matter and Cars.com does a great job of pushing their numbers side by side. However, it really is smoke and mirrors. If the 2 counted their VDP's the exact same way, it would be a much different story wouldn't it.