LAKE SUCCESS, N.Y. — DealerTrack Holdings Inc. announced on Monday that it has signed an agreement to sell its wholly owned subsidiary, ALG Inc., to TrueCar Inc. In connection with the sale, DealerTrack has entered into additional commercial arrangements with TrueCar, including a perpetual, royalty-free license for DealerTrack to use certain ALG intellectual property and data in its products and services.
The transaction is structured as a tax-free reorganization, and, in consideration for the sale of ALG, DealerTrack will receive a 15 percent equity interest in TrueCar and warrants to increase its ownership interest to up to 19.9 percent. As part of the transaction, DealerTrack will have the limited right to appoint a director to TrueCar’s Board. The sale is expected to close in the fourth quarter, subject to customary closing conditions and regulatory approval.
“This transaction exemplifies our strategy of effectively allocating capital to maximize value for DealerTrack stockholders,” said Mark O’Neil, chairman and chief executive of DealerTrack. “We are not only selling a business which we have grown significantly since we acquired it back in 2005, we are making an investment in a high-growth, progressive company that is positively impacting the way cars are retailed in the U.S. market,”
DealerTrack expects to recognize a pre-tax gain of at least $40 million on the sale, but does not expect this transaction to have an impact on 2011 non-GAAP guidance. DealerTrack will provide additional details on the financial impact of this transaction during its third quarter earnings call.
Scott Painter, chief executive officer of the Santa Monica, Calif.-based TrueCar, said he expects the deal to not only enhance the vehicle information site’s services, but also its relationship with vehicle OEMs.
“We are pleased to be entering a strategic partnership with DealerTrack, which includes a two-year commitment to help us effect a smooth transition of the ALG business,” Painter noted. “We believe that, in combination with ALG’s core competency of providing industry-leading residual values for the automotive market, TrueCar’s business will be enhanced and continue to generate exceptional growth as more of the car buying process moves online.”
Evercore Partners acted as financial advisor and O'Melveny & Myers provided legal advice to DealerTrack in connection with this transaction.