LAKE SUCCESS - DealerTrack Holdings, Inc., today announced 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 15.0 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.
DealerTrack expects to recognize a pre-tax gain for GAAP purposes 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.
Mark F. O'Neil, chairman and chief executive officer of DealerTrack, commented, "This transaction exemplifies our strategy of effectively allocating capital to maximize value for DealerTrack stockholders. 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."
Scott Painter, chief executive officer of TrueCar, commented, "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. In addition, we believe that our acquisition of ALG will significantly improve our relationship with OEM's."
Painter continued, "Lastly, 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."
Based in Santa Monica, California, TrueCar simplifies and clarifies the car buying process for consumers by providing accurate market information which helps buyers make better, more informed decisions. TrueCar saves consumers time and money by providing price clarity and transparency, while delivering the benefits of higher close rates and vehicle sales to dealers. TrueCar reaches consumers via two channels.
The direct channel is a website that provides vehicle pricing transparency to consumers and dealers and the indirect channel is a private-label affinity buying program for major brands. The TrueCar management team were founders of CarsDirect, and have a very deep background in retail automotive technology.
Evercore Partners acted as financial advisor and O'Melveny & Myers provided legal advice to DealerTrack in connection with this transaction.