TrueCar Inc. agreed to sell its ALG subsidiary to J.D. Power for $135 million. The move comes as the vehicle-listings company looks to strengthen its balance sheet amid a difficult business environment due in part to the coronavirus pandemic.
The price tag includes an upfront cash payment of $112.5 million at closing, as well as up to $7.5 million payable in early 2021 based on ALG's 2020 revenue and up to $15 million payable in 2023 based on 2022 revenue.
TrueCar shares surged on the news, rising 28 percent to close at $5.48 on Friday.
ALG, acquired by TrueCar from DealerTrack Holdings Inc. in 2011, provides residual value forecasting for automakers and auto lenders, in addition to portfolio and risk management and data analytics.
A TrueCar spokeswoman said in an email that the company expects the deal to be finalized by the end of the year, pending customary closing conditions and regulatory approval. The transaction has been unanimously approved by TrueCar's board.
"Today's announcement is a tremendous outcome both in terms of the value delivered to our shareholders and the potential ALG has with its new owner," TrueCar CEO Mike Darrow said Thursday. "After careful consideration of a variety of options and potential partners, it became clear that a sale of ALG to J.D. Power, with its breadth of complementary services, represented the best possible path forward for all parties."
J.D. Power CEO Dave Habiger said ALG will bring complementary strengths and value to Power's extensive data assets, valuation expertise and analytic tools.
He called ALG "a trusted data provider to the automotive industry delivering accurate and reliable residual value forecasts."
Residual values are the cornerstone of car and light-truck leasing and are used across multiple segments. Almost one-third of new vehicles sold each year are leased, J.D. Power said, typically for a three-year term, and the value of vehicles in outstanding lease portfolios is estimated at $500 billion.
"Accurately predicting the value of vehicles at the end of the lease term is an essential activity for vehicle manufacturers and finance companies," Power said in a statement.
TrueCar also said its board has authorized a share repurchase program of up to $75 million. The sale of ALG will in part go toward funding the repurchase program.
Also Thursday, TrueCar reported revenue dropped 29 percent to $62.7 million in the second quarter. It posted a smaller net loss of $11.2 million, compared with a loss of $24.1 million in the year-earlier quarter.