ADP Revs Its Car Business With a $400 Million Deal for Cobalt


With $2.1 billion in the bank and continued strong cash-flow generation, Automatic Data Processing (ADP) is nicely positioned to pull off acquisitions. And in the past week, the large provider of HR, payroll and benefits administration services has struck two deals. First, ADP purchased Workscape, which provides integrated benefits and compensation services.

Then, a much larger deal -- the $400 million acquisition of Cobalt. The company offers marketing services primarily to auto dealers.

The transaction is expected to close in four to six weeks. What's more, Cobalt's private equity investors -- Warburg Pincus, ABS Capital and Oak Investment -- likely made a nice return.

A Look at Cobalt

An early pioneer of the Internet, John Holt founded Cobalt back in 1995. He believed that emerging technologies would bring about major changes in advertising. So why not focus on the massive auto market?

However, this required more than $100 million in equity capital. After all, it takes tremendous resources to build new online platforms as well as find willing customers.

For example, Cobalt provides dealers with customized websites, search engine optimization and help with Internet search advertising. The company has also continued to innovate over the years, integrating social media, such as Twitter and Facebook as well as mobile applications, into its offerings.

What's more, Cobalt has a thriving lead-generation business. This includes partnerships with, MSN Autos, Kelley Blue Book, AOL Autos and Yahoo! Autos. Cobalt also operates, which attracts 11 million unique shoppers a month.

Bulking Up the Dealer Segment

ADP already has a large dealer-services business. But it's focused mainly on management systems that help with accounting, inventory management, service and so on. Thus, by adding Cobalt's marketing capabilities, the platform will certainly be more competitive. Besides, the company has relationships with more than half the auto dealers in the U.S. and about 30 manufacturers across the globe.

The deal for Cobalt will help ADP deal with the continued problems in the auto dealer market. With the recession and closure of many dealers, ADP has forecasted a 3% to 4% decline in the business for the year.

But over the next couple years, the online advertising market for autos is expected to be strong. At the same time, ADP's core payroll business is showing signs of stabilization and should also start to grow more as well.