ADP Agrees to Buy Cobalt for $400 Million
Automatic Data Processing Inc., facing an auto dealer computing market beset by a 13 percent drop in U.S. dealerships over the past two years, said today it has agreed to buy digital marketing company Cobalt Group Inc. for about $400 million in cash, reported Automotive News.
“Acquisitions that complement our core businesses are a key part of ADP's five-point strategic growth program,” ADP CEO Gary Butler said in a statement. He said the deal is expected to close within six weeks.
The companies said the combination would improve automotive retailing for consumers, manufacturers and dealers.
“For over 15 years, Cobalt's mission has been to enable [manufacturers] and dealers to work together to use the Internet to influence prospects as they move from product awareness to purchase and provide more timely services to existing owners,” Cobalt CEO John Holt said in a statement.
“By combining our offerings with ADP, we will be even better positioned to carry this mission forward.”
Analysts said the acquisition will increase ADP's presence in the dealer Web marketing business as dealers and automakers increasingly rely on the Internet.
In the U.S. dealer management and Web marketing businesses, ADP competes with Reynolds and Reynolds Co., DealerTrack Holdings Inc. and Dealer.com, among others.
ADP's move is crucial because it must rely on the expanding Web marketing business to make up for the stagnant dealership management systems business. After the 2009 bankruptcy reorganizations of General Motors Co. and Chrysler Group, the number of U.S. light-vehicle dealerships plunged from 21,461 in 2008 to 18,607 at the beginning of this year, according to the Automotive News Data Center.
ADP, in a report filed in April with the U.S. Securities and Exchange Commission, said it expected a 3-4 percent decline in revenue for the dealer services unit during the fiscal year that ended June 30.
"We continue to anticipate no improvement in segment pretax margins," the report said.
During the first nine months of its fiscal year, the dealer services unit posted earnings of $156.2 million on revenue of $922.2 million compared with earnings of $159.7 million on revenue of $960 million during the same period a year earlier.
ADP said business during the nine months declined by $88 million because of dealer closings and canceled services.
However, the lost dealer business was somewhat offset by a $62.3 million growth in revenue from new clients and "key products" such as Internet related services and applications, ADP said.
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