Recently it was announced in the M&A media that AutoTrader.com was acquiring VinSolutions. Many of you have probably heard of AutoTrader. Created in 1997, AutoTrader.com is the Internet’s “ultimate automotive marketplace and consumer information website.” AutoTrader.com aggregates in a single location millions of new cars, used cars and certified pre-owned cars from thousands of auto dealers and private sellers. It is a leading online resource to advertise and market vehicles to active car buyers. According to their website, they “provide the largest selection of vehicles and attract more than 14 million qualified buyers each month.”
VinSolutions is a developer of Internet-based Customer Relations Management (CRM) and Internet Lead Management (ILM) software. In addition to CRM, ILM and Inventory Control products, VinSolutions builds custom dealership Web sites, uploads inventory photos, offers their clients quality training and consulting services, as well as valuable customer support.
So why would AutoTrader.com acquire VinSolutions? According to AutoTrader.com President and CEO Chip Perry:
“We are thrilled to acquire VinSolutions and add it to our best-in-class portfolio of dealer software solutions companies … VinSolutions is a strong compliment to our existing dealer software companies, and a priority for us will be to ensure the scalability of VinSolutions software & customer support, and to execute on plans for how VinSolutions will integrate with vAuto, HomeNet and CDMdata to create an even more powerful suite of Internetand related software solutions for dealers.” (emphasis added)
Were you aware that AutoTrader.com actually owned a number of auto dealer software solution companies? My guess would be that you too were surprised to learn this.
Clearly, AutoTrader.com is acquiring VinSolutions to augment and improve their current family of software companies. And this really makes sense because AutoTrader.com is essentially the largest auto-trading portal in the U.S., if not the world.
Notice the verbs that I have bolded above: compliment and integrate. These are two vital features that dealmakers look for in targets prior to making any acquisition. How will this deal compliment our company and how easily will the new products/services integrate into our existing ones? The more confidence you can give perspective buyers in these two areas, the better off you will be in terms of deal value and structure when the deal closes.
Many of you are probably aware that AutoTrader.com operates as a subsidiary of Cox Enterprises, but it is also funded by Providence Equity Partners (a private equity firm) and Kleiner Perkins Caufield & Byers (a venture capital firm). So this is clearly a case where the investors are building a much larger portfolio company by using AutoTrader.com as the platform.
How The Deal Was Structured
One more feature of this deal: Although the details of the transaction were not announced (which is not unique in the middle-market), VinSolutions will maintain its current management team led by CEO Mike Dullea and CTO Matt Watson who will “continue to help propel the company’s growth in the future.” This deal has been structured so that the original owners have retained an equity stake in the new company; this will allow them to participate in a second liquidity event in a few years when the much larger entity (after several rounds of add-on) is either sold or taken public.
This structure is quite common in the. Equity firms that specialize in this space know that many of the targets they look at have great management teams in place; what they lack is adequate capital to grow the business. By partnering with existing management and structuring the deal so that not only they are retained – they keep a partial equity stake – the investment firms ensure consistency in leadership while providing capital for growth.
Having said that, keep in mind that structuring a deal like this can be quite complex. If you are contemplating the sale of your company without the help of an M&A advisory firm, be aware that this type of deal structure may be beyond your level of expertise to negotiate. This is why I encourage every business owner who is thinking of selling in the near future to consult and partner with an experienced M&A advisory firm. Not doing so could cause you to leave millions of dollars on the table and force you to accept a deal structure that is not in your best interest.
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