Cliff Banks - The Banks Report

Big Change in’s Future?

October 2, 2013 — The next several months should be interesting for

Sister Company for Sale

Its owner, Classified Ventures LLC announced on September 3 that it retained investment banking firm Moelis & Co. to explore strategic alternatives — including a sale — for,’s sister site. Also included with are the sites and

(In February, Classified Ventures sold to for an undisclosed sum.) should sell quickly as the online real estate listings market led by companies such as Zillow is undergoing consolidation this year. A story in the TheDealPipeline also reports Yahoo and AOL as possible interested suitors.

We’re hearing as many as 80 companies have either submitted bids or have expressed interest in and that a sale price could be in the neighborhood of $600 million – a nice sum for Classified Ventures, which was created in 1998 as a joint venture with media companies A. H. Belo Corp., Gannett Company Inc., The McClatchy Co., Tribune Co. and the Washington Post Co.

A sale of will leave as Classified Ventures’ only business.

At the moment, is not for sale, yet the expected sale of its sister site along with other developments in the media space promise numerous changes for the car buying site.

Changing Relationships with Newspapers

Classified Ventures, including, has affiliate relationships with approximately 150 different newspapers across the U.S. As part of those relationships, Classified Ventures manages much of the digital advertising for those newspapers which includes the profitable automotive listings generated by

But as media companies owning the newspapers are being sold, has seen several of its contracts with newspapers end – including papers in Philadelphia, Milwaukee, Long Island, NY and Minneapolis.

A similar scenario is playing out in Boston now as the sale of the Boston Globe and its parent company, The New England Media Group, from the New York Times to Boston billionaire John Henry is scheduled for October 15.

As a result of the sale,’s contract with The Boston Globe is ending.

Even more importantly, the recent sale of the Washington Post Co. – one of Classified Ventures’ owners — being sold to Amazon owner Jeff Bezos means that its relationship with that newspaper likely will also end soon.

And in July, the Tribune Co. – another Classified Ventures’ owner — announced it was planning to spin off its publishing business, including its eight newspapers – into a separate company so it could focus on it broadcast and online business.

The Tribune Co. owns approximately 28% of Classified Ventures, which is part of the online business it wants to focus on.

As the Tribune Co. spins off or sells its eight major newspapers, it is reasonable to expect those relationships with will also end.

These developments — the sale of its sister site and the ending of numerous newspaper relationships — actually are good news for

It hasn’t missed a beat in the markets in which its newspaper relationships have ended. It’s the newspapers that have found themselves scrambling to replace the lost revenue that had been provided by provided the online know-how and the technology to the newspapers, while the salespeople generally worked for the newspapers.

Typically, the digital sales teams in the local markets jump over to as the contracts end because has the product and platform for them to sell.

Meanwhile, keeps the revenue it used to have to share with the newspapers.

Investor Perception

Add the pending sale of to the equation, – even though it technically isn’t for sale — quietly is becoming an attractive company for potential investors which reportedly see significant growth opportunity for the company.

  1. Classified Ventures becomes singularly focused on the automotive online classified listings business.
  1. It quickly is becoming a company unencumbered by legacy contracts in which it had to share in the revenue and profit with local newspapers.

That means should experience a period of growth over the next few years as it’s able to keep more of its revenue and profit for itself.

  1. It’s a company with a lot of opportunity on the acquisition front., mainly because of its ownership structure – five different media companies – found making acquisitions more difficult.

Add to that a deliberate and careful strategy plotted by Classified Ventures CEO Dan Jauernig and President Mitch Golub, in which the company shied away from overpaying for other firms. Instead, focused on investing in building out its platform technology and advertising capabilities, which has played well with automakers.

That’s not to say it hasn’t walked away from deals it should have made and that probably has limited its growth over the years.

Its competitor has spent more than a billion dollars in acquisitions the last few years and now is considered to be a mature company whose growth prospects lie in a successful integration of those acquisitions – no sure thing.

  1. Despite a few recent hiccups in which some dealer consultants have publicly questioned and criticized some of its lead generation strategy scores favorably with dealers on surveys – and that plays into the perception potential investment groups have. Valuation and Future

What does all this mean for’s future?

First is its value. We don’t have access to’s financials, but based on the intangible aspects we listed above and what we’ve pegged its competitor’s value to be ($4 billion), a valuation of likely would fall in the $2.8 billion to $3.1 billion range.

It is unlikely’s ownership will stay pat once the sale of is final.

Whether that means (Classified Ventures) will be sold, go public or solicit investment from a private equity firm such as KKR, T. Rowe Price or Carlyle, remains to be seen.

Second is its leadership. It would not make sense for both Jauernig and Golub to stay with the company long term. Who stays and who goes is anybody’s guess. (We hear both are held in high regard in the investment and automotive communities.)

Here are our predictions based on what we’ve laid out above. This time next year, likely will have received a significant infusion of cash resulting from a private equity firm or sale. Golub or Jauernig will move on and the company will become more aggressive on the acquisition front (companies such as TrueCar or might be attractive although we believe TrueCar is prepping for an IPO for the first half of next year) adding considerable value to the company.

Stay tuned…

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