HGGC Continues Investment in Automotive Retail

HGGC Continues Investment in Automotive Retail

August 3, 2015 — HGGC, co-founded by former San Francisco 49ers and NFL Hall of Fame quarterback Steve Young, has a portfolio of 19 investments, including two in the automotive retail space. Following up on its investment in Auto Alert in April 2014, HGGC announced its second play with an automotive retail vendor last week investing in a company providing solutions to dealership service departments. 

Last week, private equity firm HGGC announced it is investing in Dealer-FX, a technology firm providing service department solutions for new car dealerships. It is HGGC’s second investment in the automotive retail space since April 2014 when it acquired Auto Alert, a data mining analysis firm.

HGGC, founded by former San Francisco 49ers and NFL Hall of Fame quarterback Steve Young and CEO Richard Lawson, has a portfolio of 19 investments totaling $2.4 billion in equity, with two in automotive retail.

Dealer-FX is the latest in a series of companies in the service repair space over the last two years to be acquired or receive significant investment from private equity. Solera, DealerTrack, Cars.com and Cox Automotive have been the three companies up till now making the acquisitions.

Dealer-FX, based in Las Vegas and Toronto, has been quiet but has had significant growth the last few years. In 2012, it became Fiat Chrysler Automobile’s provider of service drive write up solutions for its dealerships. It has doubled annual revenues each of the past four years, and was ranked on Deloitte’s Technology Fast 500™ in 2014.  Its 150 employees serve dealers and OEMs in the United States, Puerto Rico, and Canada.

It also has been eyeing a significant play in the connected car space and was recently named Industry Newcomer of the Year at the TU-Automotive (Telematics) conference.

The question is whether HGGC plans to merge the two firms. There likely are synergies between the two companies and together they would present a better story when HGGC executes its exit strategy in the next few years. Both companies were on our watch list in what we consider a third tier level of vendors in automotive retail that probably would have to make some type of move this year.

Auto Alert increasingly was being seen as a company that needed to add to its portfolio of products this year.

Meanwhile, the competitive landscape for Dealer-FX changed considerably with AutoPoint being acquired by Solera Holdings and XTime by Cox. (Solera also acquired Service Dynamics, DME Automotive and Cima Systems this year).  Although terms of the deal have not been disclosed, HGGC provides much needed capital and a respected strategic partner to Dealer-FX. It’s probably a good deal for CEO Gary Kalk and his team.

Look for HGGC to continue being a player on the acquisition side. There are numerous directions in which it can move but there will probably be one to two more deals this year that can be married to Dealer-FX and Auto Alert. At that point, the company will likely put everything under one umbrella.





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