SANTA MONICA, Calif., and TROY, Mich. –
J.D. Power’s analytical horsepower is about to get much stronger.
Late Thursday afternoon, TrueCar announced that it has entered into an agreement with J.D. Power to sell its ALG subsidiary for $135 million. According to TrueCar’s news release, the total consideration includes an upfront cash payment of $112.5 million at closing and total deferred payments of up to $22.5 million based on certain financial results.
The company said the transaction was unanimously approved by TrueCar’s board of directors and is expected to close by the end of this year. The company also said the closing is subject to customary closing conditions as well as regulatory review and approval.
ALG is an industry authority on automotive residual value projections in both the United States and Canada, and the acquisition is expected to augment offerings from the data & analytics division of J.D. Power.
“We believe ALG will bring complementary strengths and value to J.D. Power and its clients,” J.D. Power president and chief executive officer Dave Habiger said in its own news release. “For more than 50 years, ALG has been a trusted data provider to the automotive industry delivering accurate and reliable residual value forecasts.
“Adding that component to our extensive data assets, valuation expertise and analytic tools will enable us to provide even more value to our clients. We are excited to welcome the ALG team to J.D. Power,” Habinger continued.
The companies emphasized that residual values are the foundation of vehicle leasing and are used across multiple segments of the automotive industry. Almost one-third of new vehicles sold each year are leased, typically for a three-year term, according to J.D. Power, which pointed out that at any point in time the value of vehicles in outstanding lease portfolios is estimated at $500 billion.
The companies reiterated that accurately predicting the value of vehicles at the end of the lease term is an essential activity for vehicle manufacturers and finance companies.
J.D. Power acknowledged countless variables affect the actual residual value of a vehicle over a multi-year lease term. Examples include mileage, quality/reliability, options and feature sets, weather and the macroeconomic environment.
Since these factors need to be taken into account in order to accurately forecast residual values, the company said. The more granularity and greater the understanding of the impact of each variable, the better equipped manufacturers and finance companies are able to maximize profitability.
Executives contend the combination of J.D. Power’s capabilities and data with ALG’s deep experience in residual values will allow for even more accurate end-of-lease forecasting capabilities.
”Today’s announcement is a tremendous outcome both in terms of the value delivered to our shareholders and the potential ALG will have with its new owner,” said Mike Darrow, president and chief executive officer of TrueCar. “After careful consideration of a variety of options and potential partners, it became clear that a sale of ALG to J.D. Power, with its breadth of complementary services, strong automotive industry expertise and trusted reputation, represents the best path forward for ALG’s clients.
“J.D. Power’s unwavering dedication to its clients and the remarkable level of trust it has built among consumers and the auto industry bodes well for the future of ALG,” Darrow went on to say.
While the acquisition adds to J.D. Power’s knowledge portfolio, TrueCar also touched on what the deal is intended to do for its operation.
TrueCar chief financial officer Noel Watson added in a news release from that company, “The successful completion of this transaction represents yet another milestone in our ongoing transformation. We continue to believe that an unwavering focus on our core business will drive a balance of sustainable growth and profitability that maximizes long-term shareholder value.”
TrueCar also announced in its release that its board of directors has authorized a share repurchase program of up to $75 million, with the intent to begin repurchasing shares in the near-term.
The company said intends to use available cash as well as the proceeds from the ALG divestiture to support this repurchase program, fortify its balance sheet and maintain strategic flexibility.