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Rumors have been flying around the car biz since AutoCon in early September and all Reynolds employees from before the Brockman acquisition began receiving "cash out" offers to retire the Reynolds and Reynolds pension fund liability... Who will end up owning the second largest DMS provider in the auto industry?
NEW YORK (Reuters) - October 29, 2012 - Reynolds and Reynolds, which provides business management software for auto dealers in North America and Europe, is exploring a sale to private equity that could fetch around $5 billion, several sources familiar with the matter said."
Reuters goes on to say:
"The privately held company has hired technology-focused investment bank Qatalyst Partners to manage the process and is in talks with a few major private equity firms about a leveraged buyout, the sources said on Monday."
Similar to Seller Assisted Financing, Reuters reports:
"Deutsche Bank <DBKGn.DE> is also helping Reynolds and Reynolds with a potential sale and has offered seller financing to potential buyers, the sources added."
Reuters reports on record earnings levels by Reynolds:
"The company has over $500 million in annual earnings before interest, tax, depreciation and amortization (EBITDA) and could be valued at around 10 times EBITDA, two of the sources said."
With an auction style format and heavyweight sales representation, the sale of Reynolds and Reynolds may set new standards, as reported by Reuters:
"The sale process involves the largest private equity investors in the technology space, including KKR & Co LP <KKR.N>, the sources said. The auction is early in the second round with management meetings scheduled to take place over the next few weeks, the sources said."
Interesting disclaimer within the Reuters news report:
"All sources asked not to be identified because the process is not public. Representatives for Reynolds and Reynolds and Deutsche Bank declined to comment. KKR and Qatalyst Partners did not immediately respond to requests for comment."
About the Reynolds and Reynolds Company according to the Reuters News Report:
"Dayton, Ohio-based Reynolds sells software tools that allow car dealers to run their operations, including providing car dealer websites, digital advertising and marketing services, as well as data archiving.
In 2006, the company was acquired by Universal Computer Systems (UCS) for $2.8 billion. The merged company retained the Reynolds name and is currently headed by Chairman and Chief Executive Bob Brockman, who used to run UCS.
Brockman's $2.8 billion buyout was funded primarily by a group of investors that included Goldman Sachs Capital Partners, the private equity arm of Goldman Sachs Group <GS.N>, and Vista Equity Partners."
The Reuters Reporting referenced in this post was written by Nadia Damouni, Soyoung Kim and Greg Roumeliotis in New York; with editing by Bernard Orr
Online source: www.reuters.com
So... What have you heard? Who is going to buy The Reynolds and Reynolds Company?
I think you got it right with your 3 letter response...
I do not believe that AutoTrader would acquire R&R as it does not fit the forward thinking growth potential or agenda that AutoTrader is following. AutoTrader has been very shrewd in their acquisitions and R&R doesn't make sense for them.
Closed architecture DMS systems are losing market share every year to more flexible programs like DealerTrack, AutoMate, Quorum, and AutoSoft. Dealers are losing their appetite for long term expensive contracts with these companies that’s why you see ADP and R&R diversifying into online ad agencies, VOIP telephony, web solutions, social media, lead providers, etc. etc.
They see the handwriting on the wall and know that over the next ten years today’s DMS will become obsolete. Whoever acquires R&R needs to be very open about new channel growth, re-engineering the current system and processes, and rebuilding the culture and standing of R&R in the auto retailing community.
It will not be easy but it presents a great opportunity for a team with vision who can see where the industry will be going over the next decade. I am excited to see if the new owners recognize the potential that exists for them.
Mark, I think the very reasons you gave are the reasons it makes sense for Cox/AutoTrader to buy R&R. They actually have the talent and dollars to re-engineer R&R and bring it not only into the present but integrate it fully with Vinsolutions CRM/website solution mixed with vAuto for inventory. What a juggernaut that would create!
It's not going to be Cox....
We often get myopic when talking about these potential acquisitions thinking it has to be someone in the industry. If there indeed is a sale, it likely will be to a top tier private equity group with no real ties to automotive.
That's essentially what's happened with AT -- Providence Equity acquired 25% of the company providing it with enough investment to go on its buying binge. Of course, the idea there was to take ATC public, but the earliest that will happen now is 6 months from now -- probably longer.
We've all heard the rumors re; Cox/AutoTrader buying Reynolds and they seemed detailed enough to think an offer was made. But I'm not sure that was the case.
The Reuters report about a leveraged buyout could mean a sale to a group of employees using the assets of Reynolds as collateral for a loan from Deutsche Bank- just throwing a scenario out from left field. The article did a poor job of explaining KKR's role -- whether it's a buyer or part of the group helping to sell. In other stories, KKR is the potential buyer.
If it is Cox (which I doubt) or another private equity group, it'll be purely a financial play -- again, don't fall for all the spin about synergies, opportunities etc. That's all garbage. Private equity buys companies for one reason -- to flip it as quickly as possible for the most profit possible. (Sounds like Pollak's philosophy on used cars!)
Mark, I'm not so sure Rey is "losing" cash quickly. If this sells, it's going to go for more than $5 billion just like that article said. It's making significantly more money than it did when it was public (before Brockman). And he bought it for $2.8 billion. He ain't selling for less than he paid for it.
Remember, Reynolds has a nice "little" empire with pieces we don't think about -- its European operations, the key companies, CallBright, Who's Calling etc.
There's a lot of "stupid" money right and these equity groups are looking for the right investments. Reynolds is an attractive target.
Fun to speculate, isn't it?
Mark, no offense, but I don't wear a dealership hat. Those who know me, know that. My favorite view is the global view. I believe a company like AutoTrader buying R&R will be the death of the traditional DMS.
R&R is not an aquired company that will lose their innovative spirit... because they don't have one. They are a legacy company that will add depth to the buyer who will discard their antiquated system but make full use of their database and integration possibilites.
Pardon me if I disagree with your statement that dealers aren't always comfortable tying their DMS with their websites and their CRM and their digital marketing strategy. I, in the trenches, believe that's exactly what they want.
I agee with my good gentlemen from Philadelphia (you can tell I just watched Lincoln) and I doubt if a purchase of old technology by a new technology leader like AT/Cox makes sense - at such a premium. I also agree with Tom and that dealers are looking to simplify and consolidate. It makes more sense for VIN solutions to expand and eventually develop their own DMS. When we designed DealerStar, we listened to dealers that were tired of interfaces that didn't work and escalating technology costs. Although not for everyone, some dealers do want a single solution and fully web-based. I think if a little company like ours could do it, what could VIN solutions/AT come up with all their smart people?
Cliff - I am so very proud of the way I sucked you into posting comments on ADM... I really feel like I have accomplished a major member engagement milestone, since you are so loathe to do so!
Don't buy the PR spin from the buyer -- whether it's Cox or another private equity group. This acquisition has nothing to do with vision, opportunities, creating unique value propositions (nice one, Ralph), or filling a "product" hole.
This is purely a financial play for the buyer to obtain a cash machine and nothing more. Sorry for the jaded perspective, but it is what it is....
Of course, it could be something out of left field such as a sale to employees or some obsure European company.