A successful turnaround effort after enduring a rock-bottom stock price and prolonged legal fights with customers has investors in Santa Monica’s TrueCar Inc. cashing out.
In coordination with a secondary offering of TrueCar’s shares, seven investors plan to sell 8 million shares on Tuesday at $16.50 a share, an offering worth $148.5 million.
The Santa Monica online car-shopping company will offer 1 million shares as part of the follow-on offering, raising $16.5 million to fund general operations. The insider stock sale represents about 36 percent of the firm’s common stock.
The seven investors are Santa Monica’s Upfront Ventures, United Services Automobile Association, Pacific Sequoia Holdings, Paul Allen’s Vulcan Capital Growth Equity, Nevada Capital Partners, Peppy Capital Partners, and investment vehicles connected to Jeff Skoll’s Capricorn Investment Group. No insider is selling more than 25 percent of its stake.
TrueCar’s stock has risen nearly 250 percent since August 2015, the month its founder and former Chief Executive Scott Painter resigned after a series of long-running lawsuits with auto dealerships. It closed at $16.74 on April 26. The company’s revenue rose to $277 million last year, up 34.3 percent from about $207 million in 2015.
TrueCar’s website and app collects car sales data from dealerships, giving shoppers a chance to compare prices with regional averages. It also allows dealers to offer a set price for cars with TrueCar receiving a fee when a lead is converted into a sale.
While many auto dealerships rely on TrueCar for leads, some have noted its price transparency rules cut away at their profit margins. Growing tensions led to a May 2015 lawsuit filed by the California New Car Dealers Association, a Sacramento trade group representing 1,100 of the state’s new-car dealers, in which it alleged TrueCar was operating as an auto dealer and broker without a license. The case is scheduled for trial in August. Other TrueCar customers, such as AutoNation, chose to leave the platform. Those soured relations led to lower than desired earnings and Painter’s departure.
The company hired Chip Perry as chief executive later that year; he has made it his mission to improve dealer relations.
“When I came into the company, I saw a very solid business model, but one that had many shortcomings in the way it was being executed,” Perry said.
