Strong Nov. auto transactions indicate investors are optimistic about future

Welcome to another edition of The Friday 5 with Steve Greenfield, Founder and CEO of Automotive Ventures, an auto technology advisory firm that helps entrepreneurs raise money and maximize the value of their companies.

U.S. stocks had a banner November, at one point pushing the Dow Jones Industrial Average over 30,000 for the first time, and giving the Dow its best month in over 33 years, as investors cheered the prospect of COVID-19 vaccines, halting the pandemic and the possibility of fresh stimulus spending to bolster the economy.

The bull run has put the Dow up 62% from its March low, when the U.S. Federal Reserve ended a panic that wiped out trillions of dollars in investments by outlining a plan to counter the pandemic’s economic stress.

Among the big reasons for climbing stock prices is investors’ optimism about the strength of the economic recovery in the years ahead. While recent data show economic growth slowing and consumer confidence flagging, markets are forward-looking and betting the recovery will gain steam, particularly with COVID-19 vaccines on the horizon.

This week’s automotive technology transactions

November saw some sizable deals in the M&A space, and we are likely to see a couple of other big ones announced before year-end.

S&P Global and IHS Markit

This week S&P Global agreed to acquire IHS Markit for $44 billion dollars, the largest merger of the year.

S&P traces its roots to an 1860 compendium of information for railroad investors and is best known for its bond ratings and its iconic stock-market indexes, which serve as shorthand for the health of global markets.

IHS Markit, formed in 2016 by the merger of two smaller players, tracks millions of data points in financial markets, but also has the Carfax, Polk automotive data and AutomotiveMastermind brands.

In 2016, IHS merged with Markit, and the two companies had a combined market value of about $13 billion. Today, IHS Markit is nearly three times as valuable, a sign of how hot the market for financial data is.

CDK Global

November saw a second large deal, with CDK Global announcing the sale of their CDK International business segment to Francisco Partners for $1.45 billion dollars, representing approximately 15-times adjusted EBITDA including expenses for the standalone business.

CDK’s international business has historically underperformed their core, and was a distraction for the company, who derives most of their $2 billion dollars in revenue from the North American Market.

During CDK Global’s latest earnings call they signaled that they’d be looking at making acquisitions in the short term. The sale of their international business will give them a war chest to go hunting for M&A targets.

TrueCar

Last month, TrueCar completed the sale of ALG to J.D. Power for $135 million dollars. This puts approximately $275 million dollars of cash on TrueCar’s balance sheet, which equates to almost $3 dollars per share in cash.

We’ll be eager to see what TrueCar decides to do with this cash, beyond buying back shares.  

Hertz

Hertz has announced plans to sell its Donlen fleet leasing and management subsidiary. Hertz has entered into a stock and asset purchase agreement with Athene Holding, a financial services company.

With adjustments for fleet equity, working capital and assumed debt, Hertz Global expects the deal to bring a purchase price of at least $875 million dollars.

Hertz Global filed for Chapter 11 bankruptcy in May under $19 billion dollars in debt.

Metromile

Digital automotive insurance platform Metromile will go public via a Special Purpose Acquisition Corporation, or SPAC.

Metromile is reimagining insurance to make it fairer and actually delightful for the consumer.

The deal, expected to be worth $1.3 billion dollars in combined company market cap, includes a $160 million dollar commitment led by Social Capital LP, Miller Value Partners, ClearBridge Investments, Hudson Structured Capital Management, Mark Cuban and New Enterprise Associates.

We continue to highlight interesting companies in the automotive technology space to keep an eye on. If you read my monthly newsletter, I showcase a few companies each month, and we take the opportunity here on the Friday Five to share some of those companies each week with you.

Understory

Our first company to watch, Understory, was founded in 2012 in Madison, Wisconsin, by Co-founders Alex Kubicek, Alexander Jacobs and Bryan Dow.

Understory is a weather infrastructure and analytics company that detects rain, hail, wind, and other weather events directly at the earth’s surface, where the risk to life and property is greatest. Understory builds and operates weather networks that are comprised of patented RTi weather stations, which are full-stack, rugged, tamper-proof, maintenance-free, precision weather solutions. The stations measure at 50,000 times a second and power a cloud-based artificial intelligence core that stitches the measurements together to provide an unprecedented understanding of weather events.

These weather networks have completely wireless data transmission and provide research-grade hail, wind, rainfall, temperature, humidity, and growing degree unit accuracy at a fraction of the cost of any other solution on the market. Understory’s technology has been perfected for worldwide deployment and is posed to radically change the way weather is understood globally.

Climate-vulnerable businesses like automakers and dealerships rely on Understory’s parametric insurance for financial protection from hail damage. Businesses can manage severe weather risk with simple, transparent, flexible insurance coverage.

CarOffer

Our second company to watch is, CarOffer, founded in 2019 by serial automotive technology entrepreneur Bruce Thompson, and located in Dallas, Texas.

CarOffer is an instant wholesale vehicle trading platform that provides real-time live bidding online auction services.

CarOffer has over 1.5 million vehicles available for dealers to purchase, and premium offers at the point of vehicle appraisal within 2-5 seconds. Dealers can double the number of vehicles traded in every month at a 150% higher average profit.

The value propositions to dealers are:

• Instant Buy Offers on Every Appraisal, which provides an immediate exit strategy, and buy-offers average $1-$2 thousand dollars above auction prices.
• Guaranteed 45-Day Buy Offers that lock-in the offers on retailable trades and aging inventory
• Daily Inventory Buy Offers which allow dealers to get aggressive offers daily on all used inventory on their lots.
• The ability to pre-order Used Vehicles at a Lower Acquisition Cost.

Did you miss last week’s episode of The Friday 5? Watch it here now! And don’t forget to share your questions and comments with Jim Fitzpatrick at jfitzpatrick@cbtnews.com.