CarGurus said it agreed to buy a 51 percent stake in CarOffer, a wholesale trading platform founded by auto retail tech entrepreneur Bruce Thompson.
CarGurus is investing $140 million for the stake -- half in cash, half in stock, a spokesman said in an e-mail to Automotive News. The transaction gives CarOffer an enterprise value of $275 million, CarGurus said in a statement announcing the deal Thursday.
The agreement includes the ability for CarGurus to buy the remaining equity interest over the next three years.
Shares in CarGurus closed Thursday's trading up 10.5 percent to $26.86.
Adding CarOffer gives CarGurus wholesale capabilities to offer to dealers, in addition to its retail platform. CarOffer is an automated wholesale trading platform that allows to dealers to create standing buy orders and provides instant offers to selling dealers.
It has a proprietary Buying Matrix technology that automatically matches the buy orders to vehicle inventory. This is aimed at allowing dealers to essentially automate wholesale activity, potentially taking the place of traditional, timed auctions.
It also sells Guaranteed Bid contracts, which let dealers lock in a selling price for a vehicle 45 days in the future.
CarGurus CEO Langley Steinert said in an investors call Thursday morning that CarOffer's technology made the company attractive.
"There's some macro trends around physical auctions going online, which is quite obvious, but within even the online auctions, we thought these guys are highly differentiated because it's more of a predictive platform in the sense that you don't have to actively monitor an auction," he said. That makes it consistent with CarGurus' goal of "levering technology to make dealers more efficient," Steinert added.
CarOffer launched in August 2019 and has since added more than 2,000 dealerships to its platform. It had more than $350 million in gross transaction volume in the third quarter of this year, CarGurus CFO Jason Trevisan said in the conference call.
Thompson, CEO and founder of CarOffer, has created several retail technology companies. He launched the American Auto Exchange used-vehicle inventory platform in 2001 and sold it to JM Family Enterprises in 2005. In 2016, Thomspon's RedBumper, another used-vehicle management program, and NewCarIQ, a vehicle-stocking software program, were acquired by CDK Global.
"I've long admired the team at CarGurus for the innovation they have driven in the automotive retail sector, and the large consumer audience and dealer base they have built," Thompson said in the statement.
He added that CarGurus' investment will accelerate the company's reach and volume. CarGurus said in the statement it has a network of roughly 30,000 subscribed dealers globally.
"The synergies we will create with CarGurus' market data and pricing engine will enable us to provide tools and sourcing capabilities dealers desperately need," Thompson said.
The transaction is expected to close in January, subject to customary conditions. Upon closing, CarOffer will continue to operate independently under current leadership and maintain its branding as well as its headquarters in Plano, Texas.
"We believe the acquisition of CarOffer will help CarGurus in its journey to continue to bring more of the traditional car-buying process from offline channels to online channels," Ralph Schackart, a partner at William Blair, wrote in a research note Thursday morning. "Specifically, as the traditional wholesale auction process has been completed largely offline, the acquisition of CarOffer will bring new digital capabilities to CarGurus' platform that will increase its value proposition with both existing and prospective paying dealerships, in our view."
