Dealertrack Exits on Top in Pricey Software Takeover: Real M&A

Dealertrack Technologies Inc. shareholders are going out on top.

Cox Automotive Inc. announced Monday that it’s acquiring the seller of software that links car dealers with banks and other financing sources in a deal valued at about $4.3 billion including debt. That works out to 32 times Dealertrack’s earnings before interest, taxes, depreciation and amortization in the last year -- the highest multiple paid in the application-software industry since 2006.

The $63.25-a-share offer gives Dealertrack investors an 8 percent premium to the highest price the software maker has reached on its own as a public company. And it’s well above where analysts saw the stock going this year as a stand-alone.

Dealmaking across the software industry is on track for its busiest year since 2007. That doesn’t include a potential purchase of cloud-software maker Salesforce.com Inc., which would be the biggest and one of the most expensive technology takeovers.

“There is a lot of money out there chasing very few software assets,” Anurag Rana, an analyst at Bloomberg Intelligence, said in a phone interview. “We’re seeing a lot of M&A activity largely because people want to scale up their products. It’s just a matter of rounding out your portfolio of assets.”

Big Premium

Cox Automotive, owner of Kelley Blue Book and Autotrader, is paying a 54 percent premium to Dealertrack’s average stock price in the 20 days before the deal announcement. That’s the richest premium for an applications software takeover of more than $1 billion since 2012, data compiled by Bloomberg show.

The purchase of Dealertrack will make Cox Automotive a more appealing option to dealers, according to Kevin Tynan, auto analyst at Bloomberg Intelligence. Dealers will now be able to hand over all aspects of the selling process to Cox -- including paperwork, auction, billing, pricing reports and physical transportation of the cars.

Cox Automotive wants to be a sort of “one-stop shop,” Tynan said.

Cox Automotive is a division of Atlanta-based media giant Cox Enterprises Inc., whose operations range from cable services to broadcasting and publishing. Closely held Cox Enterprises generates annual revenue of more than $17 billion and has about 50,000 employees.

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