Those of you over the age of 40 remember the crazy B2B consortia days of the late 1990s. (For those you under 40, just imagine the sub-prime mortgage lunacy transferred to software!) During that time, the Big Three American auto companies formed two auto consortia: Covisint, which is supply chain oriented, and OEConnection which is oriented towards OEM parts retailing–that is “forward-facing” to collision shops and dealers. Both of these auto consortia were in the news last week for very different reasons.
Auto Consortium #1: Covisint
First a little background on Covisint, which I have written about here, here and here. The company originally had two businesses, one engaged in sourcing and reverse auctions and the other engaged in EDI messaging for the Tier 1 and beyond auto industry suppliers. The former business was sold to Freemarkets, which itself was sold to Ariba, which then sold the sourcing consulting business to Accenture. The messaging business was sold to Compuware which then spun off that business, aka Covisint to the public in 2014. (Covisint trades under the symbol COVS.)
COVS was in the news last week because:
- one investor group is asking to replace most of the existing board and
- another one is “expressing its interest in acquiring the Company for an unspecified price. In addition to not specifying any price or premium amount, no other economic terms were specified.” In short, it sounds like an amateur hour mess.
Investors are upset because the company is shrinking and, while reducing their cash burn rate, has about 2+ years worth of cash left. And yet, the company claims to be as you can see from their press release and investor presentation below:
the leading Platform-as-a-Service (PaaS) for building identity-centric and IoT applications. These applications empower automotive manufacturers to build innovative solutions rapidly, transforming the ownership experience. Serving the automotive industry for more than 15 years, Covisint is uniquely positioned to connect the rapidly growing number of people, systems and Internet-enabled devices in the automotive ecosystem.
So which will it be? Out of cash in two years or leading the clearly coming revolution for the connected car? The company’s enterprise value was about $50 million before the stock rose slightly on the recent news of a possible unsolicited offer. This suggests investors are not convinced Covisint will be at the center of the connected car revolution.
Covisint is an example of a company that should never have been public. They are trying to make a transition to a new identity (pun intended) in full public view–not fun.
Auto Consortium #2: OEConnection
OEConnection is a better story for auto consortia lovers. OEC was formed by the Big Three and Bell+Howell. As mentioned above, OEC did a nice job of integrating and becoming a de facto standard for e-commerce related to original equipment parts. I have written about OEC before here, as representing an industry catalog. OEC was in the news last week because Providence Equity Partners bought 70% of the firm from GM and Ford, who retained 15% stakes each. (This reminds me of a deal ABS did to purchase majority control of the ocean-shipping consortium, INTTRA.)
These vertical parts-related catalog businesses are beautiful fits for e-commerce and allow the purveyors to avoid the massive horizontal competitors like AmazonBusiness and Grainger. They exist in auto, aerospace/airlines, food service equipment, healthcare and medical equipment. I follow them and invest in them when I can. PE firms seem to like them as well–Polaris, Summit, Warburg, Thoma Bravo, Accel-KKR and now Providence all have invested in these types of businesses. (Interestingly, Aeroxchange an airline parts consortium has not been sold and remains consortium-owned.)
Some of these industry catalogs stock parts, some do not. Some stick with just OEM parts and some also sell “knock-offs”/private label parts. And in some markets, like aerospace and medical equipment, there are also refurbished parts. It will be interesting to see if Providence can convince its fellow auto consortia shareholders to expand into non-OEM parts. I suspect not, but that would be a fun board meeting to attend!