Adding digital marketer Cobalt Group Inc. is expected to increase ADP Dealer Services' presence in the dealer Web marketing business as dealers and automakers increasingly rely on the Internet.
Automatic Data Processing Inc., parent of ADP Dealer Services, said it has agreed to buy Cobalt for about $400 million in cash.
"Acquisitions that complement our core businesses are a key part of ADP's five-point strategic growth program," CEO Gary Butler said in a statement last week. He said the deal, which is subject to regulatory approval, is expected to close within six weeks.
In the U.S. dealer management and Web marketing businesses, ADP competes with Reynolds and Reynolds Co., DealerTrack Holdings Inc. and Dealer.com, among others.
ADP's move is crucial because it must rely on the expanding Web marketing business to make up for the stagnant dealership management systems business, which has been eroded by dealership closings.
By acquiring Cobalt and its Web expertise, ADP "further strengthens its position against archrival Reynolds and Reynolds," said Dave Nathanson, a consultant and managing director of QMA-AMI Management in Middleton, Wis.
Mike Seaton, president of the consulting firm Woods and Seaton Ltd. in the United Kingdom, said that by acquiring Cobalt and its annual revenues of about $250 million, ADP gains an important client in the Web business: General Motors Co. ADP already does Ford Motor Co.'s Web management. Dealer.com handles Chrysler Group.
The demand for digital marketing services from U.S. dealerships "has gone almost crazy over the last two to three years, and the Internet side has been coming up since the mid-'90s," said Seaton. "It is the area where there is major growth."
He said the business is not just lead generation. "It is lead enhancement, managing how dealers operate their Web sites, better-quality leads and handling them better and increased conversion levels."
Bill Playford, vice president of DealerKnows Consulting, a Chicago company that specializes in dealership electronic commerce, sees overlap between ADP and Cobalt.
For instance, Cobalt owns IntegraLink, a data integration and collection business. ADP owns and operates a similar business, Digital Motorworks.
Executives from ADP and Cobalt declined to be interviewed.