What: Shares Dealertrack (UNKNOWN:TRAK.DL), a provider of software to the automotive industry, surged 57% on Monday after it was announced that privately held Cox Automotive would be acquiring the company.
So what: Cox is buying Dealertrack for $4 billion, or $63.25 per share. This price is nearly 60% higher than Dealertrack's closing price on Friday, and the stock has risen to very nearly match this acquisition price. The Dealertrack board of directors has unanimously approved the deal, and the company expects it to close during the third quarter of 2015.
While Dealertrack offers software aimed specifically at automotive dealers, Cox serves the broader automotive market with its suite of software and services, and Dealertrack believes that the combination will be able to deliver greater value to customers of both companies. Cox President Sandy Schwartz had this to say: "This is a great investment in our customers and in the auto industry. We have long admired the Dealertrack team and its highly respected brands. Integrating our platforms will be a big step forward in our shared vision of providing open, cost-effective and efficient solutions for dealers, lenders, manufacturers and consumers."
Now what: The deal will need to be approved by Dealertrack shareholders, but with the offer price well above the all-time high for the stock, approval is very likely. The offer price of $4 billion is about five times Dealertrack's annual revenue, and about 60 times the company's earnings during 2011, its most profitable year. In 2014, Dealertrack posted a net loss.
The acquisition appears to be a strategic one on the part of Cox, given the extremely high price being paid. While Dealertrack stock has been languishing over the past year as profitability has declined, this deal offers shareholders the opportunity to cash out with significant gains.
Timothy Green has no position in any stocks mentioned. The Motley Fool recommends Apple and Dealertrack Technologies. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.