The sky is the limit when it comes to growth through acquisition at Cars.com, says Chief Strategy Officer Matthew Gold.
“We have a very deep understanding of our business — what our core competencies are, what would magnify our capabilities and where our weaknesses are,” Gold says. “We identify core areas for expansion and seek opportunities within them, as well as always keeping an open mind to unforeseen opportunities. We almost always take meetings — I look forward to being happily surprised on potential acquisitions that we’d initially been skeptical of.”
The $662 million Chicago-based company, a leading digital automotive marketplace, acquired both Dealer Inspire and Launch Digital Marketing in 2018. The deals enabled Cars.com to integrate and distribute relevant digital solutions through the company’s sales network for the benefit of its more than 20,000 dealer customers nationwide.
“The acquisition of Dealer Inspire and LDM aligns with our strategy of integrating new capabilities and additional talent to accelerate organic growth, strengthen the retail experience, deepen dealer connections and improve clarity of attribution while generating additional cash flow and enhancing shareholder value,” Cars.com President and CEO Alex Vetter said in a statement about the deals.
We spoke with Gold to learn more about the company’s M&A strategy and some of the challenges that come up in the effort to get deals done.
Evaluate all opportunities
Cars.com is consistently evaluating potential acquisitions, whether the company seeks out opportunities on its own or receives pitches from bankers and other entrepreneurs. It approaches each opportunity with a similar thought process.
“A successful acquisition starts with a strong strategic deal thesis,” Gold says. “What is the company good at? What are its major areas where new offerings would make it stronger and more competitive? That leads into a conversation about a particular target — why do you want that company? How would having it make both the mother company and the new division stronger? Once you understand the strategy underlying the transaction, then it’s time to start exploring the deal mechanics.”
The management team has a deep understanding of its business in terms of core competencies, Gold says. The next step is exploring on a deeper level how a new acquisition would help the company get better. How might a deal magnify or strengthen the company’s capabilities? What are some weaknesses that could be addressed by buying another company?
People and culture must also factor into the equation, Gold says.
“It’s tempting to manage a deal off of a spreadsheet, but if you can’t see yourself working with the management of a target company, it’s time to move on,” he says.
Create win-win scenarios
The deals to buy Dealer Inspire and Launch Digital Marketing, as well as a 2016 deal to acquire DealerRater, have proven beneficial to both Cars.com and the acquired companies.
“First, they’re independently growing fast, but needed the Cars.com ecosystem to turbocharge their growth,” Gold says. “Second, adding adjacent solutions to a sales rep’s toolkit allows Cars.com to have far deeper conversations with customers that touch multiple parts of their business. This makes the connection between a salesperson and a client much deeper.”
Additionally, Gold says, strategic acquisitions allow Cars.com to build a suite of solutions and products that work seamlessly together.
“Information and data move back and forth between a customer’s first-party site, third-party marketplaces and other infrastructure products that they use,” Gold says. “This makes it easy for the customer, which makes Cars.com’s suite of products that much more appealing in a competitive market.”
Manage the process
One of the challenges when engaging in M&A activity is keeping everyone on the same page with regard to the deal negotiating process.
“It’s making sure that everyone understands the ‘what happens next’ and ‘why,’ not just the ‘how’ and ‘how much,’” Gold says. “Often, senior stakeholders have fundamentally different beliefs about a deal, what we would get out of it and what the strategic plan would be post-acquisition. It’s made me much more cognizant of putting what feels obvious down on paper as to why we’re chasing a target and what we would do with it. You’d be surprised how often someone questions your assumptions on what you believe to be set in stone.”
As Cars.com continues to explore potential deals, the company is also exploring a broad range of strategic alternatives to enhance shareholder value, including a potential sale of the company.
“We are confident in the company's strategy to expand from a classified listings model into a leading online automotive marketplace solutions provider,” Cars.com Chairman Scott Forbes said in a statement. “We have undertaken a number of actions toward positioning the company to drive growth and achieve sustainable market leadership in our sector. We remain committed to that plan, but in light of multiple inquiries which indicate the possibility of realizing that future value now, and after careful consideration, we took the decision to explore strategic alternatives in late 2018, consistent with the board's commitment to acting in the best interests of the company and its stakeholders to enhance shareholder value.”
The company has retained J.P. Morgan as financial adviser and Latham & Watkins LLP as legal counsel for its process of exploring strategic alternatives.
In the meantime, Gold says the company will continue to look for ways to strengthen itself.
“We’re always looking for adjacent solutions that we can integrate into the core Cars.com offering,” Gold says. “I would expect us to critically evaluate companies that can make multiple parts of the full suite significantly more powerful. DR, DI, and LDM were the opening moves, but they won’t be the last.