Kind of a big deal: Dealertrack buys Dealer.com for $1 billion
Call this the week of vertical niche mergers. First Elance and oDesk, the big big two freelance outsourcing companies, join forces. And now, Dealertrack, a publicly traded company which makes helps auto dealers manage their web presences, has purchased 14-year-old competitor Dealer.com.
The $1 billion deal includes $620 million in cash and 8.7 million shares, valuing Dealer.com at 4.2 times revenue. (Look, it's a startup unicorn!)
Based in Vermont, Dealer.com has 830 employees and 7000 customers. The company manages 13,000 websites which receive 32 million uniques on average each month. This year, revenue is expected to hit $230 million, a 25 percent increase over last year.
Private equity firm Apax Partners is a large shareholder in Dealer.com, through its investment in Trader Corporation, a Canadian yellow pages company. In 2009, Trader Corporation invested $35 million for a 20 percent stage in Dealer.com, which gave the company a $175 million post-money valuation.
In 2011, Dealer.com was on track to do $100 million in revenue. That year Accel Partners invested more than $30 million into the company at a valuation in the "hundred of millions" range.
Dealer.com is one of those nuts-and-bolts companies that gets little love on tech blogs but has actually earned real revenue and now, returned money to investors (or, in investor parlance "delivered great value"). Says Rich Wong, who led the deal for Accel and is on Dealer.com's board: "Burlington, Vermont, isn't where you tend to look for tech companies, but it turns out there are a few of them up there that are really special."
Accel invested through a growth fund which aims to hunt as far outside of Silicon Valley as possible for deals. It has turned up Braintree, the Chicago-based payments company which this year sold to Paypal for $800 million, as well as Atlassian, the Australian enterprise software company which is expected to go public soon, and Lightspeed, a Canadian retail software company.
On a conference call announcing the deal, Dealertrack CEO and Chairman Mark O'Neil called the deal "highly strategic," a fact which might be characterized as "highly obvious," both to casual observers of the obscure vertical and to antitrust regulators. For its part, Dealertrack has 18,000 customers.
The merger is not creating a monopoly, though, as there are two other large competitors, in the form of Autotrader.com and a product called Cobalt, owned by ADP. Dealertrack's CEO emphasized to analysts and shareholders that the deal was not done for the cost-saving synergies (i.e., layoffs), but for cross-selling opportunities.
Disclosure: Accel Partners is an investor in PandoDaily through its seed fund.