Explosive growth in digital advertising by automakers and their dealers was a key consideration in Dealertrack Technologies' decision this week to buy Dealer.com for about $1 billion in cash and stock.
Dealertrack, a leading provider of financial services software to auto dealers, will finance the purchase of Dealer.com with $620 million in cash and 8.7 million common shares.
In an interview last week, Dealertrack CEO Mark O'Neil said Dealertrack was willing to pay a premium for Dealer.com because of the vendor's ability to take advantage of growth in online advertising.
"We realized the extent of our opportunities," O'Neil said.
For more than a decade, Dealer.com has been a leader in Web site design for automakers and dealers. It has moved aggressively into digital advertising, including paid search, online display, managed chat and ad retargeting.
Ad retargeting is the ability, with cookie tracking technology, to have ads follow shoppers from Web site to Web site.
Dealer.com expects sales of about $230 million in 2013. But that's just a fraction of the expanding market for Web sites and advertising in auto retailing, O'Neil said.
Borrell Associates, an advertising research and consulting company, estimates that U.S. franchised dealers will spend about $8.7 billion for online advertising in 2013. The amount is expected to double by 2018 to $20.1 billion as dealers shift money from traditional advertising to digital media, according to Borrell.
The deal, which caps a busy year of acquisition activity among digital vendors, dwarfs the blockbuster in 2010, when ADP Dealer Services bought Cobalt for $400 million. Cobalt also provides Web sites and digital marketing services to dealerships. O'Neil said Dealertrack will have an opportunity to sell to its customers Dealer.com products and services, and vice versa.
Rick Gibbs, Dealer.com's CEO and co-founder, said the vendor has about 7,000 dealership customers, including many who receive co-op or reimbursement from their automakers if they use Dealer.com services.
Chrysler, for example, has reimbursed dealers for about 18 months for advertising on Google if they used Dealer.com or a handful of other certified vendors. General Motors and several other automakers also co-op some or all of their dealers' digital advertising spending.
Dealertrack connects dealers with financial institutions interested in providing car loans. Through acquisitions, the publicly traded company has diversified into other software products used by dealers, including dealer management systems, customer retention and vehicle inventory management.
Dealertrack's online credit application network connects more than 20,000 dealerships with more than 1,400 lenders.
Dealertrack said it will continue to use the Dealer.com name because of its brand recognition among the automakers and their dealers.