- Deal creates a European car e-commerce giant
- Acquisition gives Constellation a path to European consumers
- Constellation now an integrated b-to-b, b-to-c and c-to-b force
With the consolidation of Constellation Automotive Group and CarNext, private equity house TDR Capital has created the largest digital retailer of cars in Europe. It was the first big consolidation among European online auto marketplaces, but you can bet it won’t be the last.
Constellation announced in mid October that it had acquired CarNext, creating a powerhouse with b-to-b, b-to-c and c-to-b elements. The deal was more of a combination of assets by TDR Capital than a typical “acquisition” of an outside venture; one competitor told us it’s a “reshuffling of assets … between two portfolio companies of TDR [that] has long been rumored and expected.”
It brings one sluggish performer in European auto e-commerce, CarNext, under the same management as one of the star performers, Cinch.
Constellation has sped past Auto1, operator of AutoHero, and Cazoo, to take a full-lap lead in the race to sell used cars to consumers throughout Europe. In Q2, the combined CarNext and Cinch business sold around 20,000 cars at retail versus 8,772 at Cazoo (which operates in the U.K. only) and 8,415 at AutoHero. CarNext and Cinch don’t disclose retail revenues, but we estimate their combined Q2 at €280 million versus AutoHero at €114 million and Cazoo at €111 million. No. 4 in the race, Aramis Group, sells more used cars at retail (14,346 in Q2) than AutoHero or Cazoo, but on the basis of its business approach (more offline), historic performance and car-manufacturer majority ownership, it isn’t rated as a true market leader.
The deal is primarily about continental Europe. Any benefits for Constellation in the U.K. are at the margins. And steering-wheel position limits how the U.K. can benefit continental Europe and vice versa.
Is car-sourcing a decisive strategic advantage?
The acquisition builds on the idea that owning major car-sourcing channels is a key strategic advantage for digital car retailers, also the core of Auto1’s strategy for AutoHero.
CarNext benefits from a long-term supply arrangement with LeasePlan, which provides 250,000 high quality / low age used cars per year across Europe at the end of their fleet lives. Now, it should also have the pick of cars from BCA’s continental European remarketing operation, last disclosed in 2019 at 400,000 cars annually. In contrast, AutoHero sold just 51,000 cars through its remarketing channel in 2020.
While AutoHero has access to 390,000 cars purchased annually through Auto1’s WirKaufenDeinAuto (“We buy your car”), these are mainly lower value cars not appropriate for sale through AutoHero. Seemingly, CarNext has by far the strongest in-house access to trade sourcing in Europe.
But do Auto1 and Constellation, the marketplaces built on strong in-house trade sourcing, have a decisive advantage over competitors like Cazoo, which are building sourcing from scratch? As yet, this advantage isn’t showing significantly in inventory levels: AutoHero at 9,500 and Cinch at 4,900 vs. Cazoo at 2,600. They’re ahead, but underwhelmingly so. (And note, Cinch also stocks cars from dealers.) However, current market conditions are unusual, with an acute shortage of used cars, with new-car shortages as well and post-pandemic hangover. When the market normalizes, the advantage may begin to show through more clearly.
If car-sourcing is a decisive advantage, Cazoo may have to find mergers or acquisitions to build up in-house sourcing channels too.
Stock market, auto retail market reaction
Three Constellation competitors – Cazoo, Auto1 Group and Aramis Group — are publicly traded; their stocks were essentially flat the day after the announcement. Auto Trader Group in the U.K., not a direct competitor (yet), was also flat the day after the announcement.
Cazoo, one of the “Big 5” digital automotive marketplaces in Europe, positioned the consolidation as a plus — a case of a rising tide lifts all boats:
“The recent entrants into the digital auto space all have relatively small market shares in an enormous market,” Cazoo spokesman Lawrence Hall told the AIM Group.
“With used cars as the single biggest retail market in Europe, there is plenty of room for multiple sizeable operators to emerge and replace a hugely fragmented market currently. In a world where two-thirds of consumers are happy to buy or sell a car entirely online but only a small fraction currently are able to do so, the more players that help build this fast-growing category in Europe the better.”
We also asked Auto1 Group; Cox Automotive / Manheim; HeyCar; Aramis Group and Auto Trader Group for comment. All declined.
The competitive landscape
Constellation holds two of the “Big 5,” which should probably now be described as the “Big 4”:
- Cinch and CarNext, now both owned by Constellation.
- Aramis Group, based in France and majority-owned by automaker Stellantis. It operates four digital dealer / car supermarket brands in Europe: AramisAuto (France); CarSupermarket (U.K.), CliCars (Spain) and Cardoen (Belgium.) It sold far more cars than Cazoo or AutoHero during Q2 and has been profitable for many years, but still its market capitalization is less than one-quarter that of Cazoo or Auto1 Group, at $1.6 billion. It listed on the Paris Euronext market in June.
- Auto1 Group SE, based in Berlin and traded on the Frankfurt Stock Exchange since a February IPO, operates in 30 markets across Europe. It has unmatched used-car knowledge and data. Earlier this week, we reported “it has maximum advantage on paper … developing automotive e-commerce in Europe,” adding, “This is Auto1’s fight to lose.” It owns AutoHero, its consumer-facing retail sales brand, live in nine countries; WirKaufenDeinAuto (“We buy your car”) which operates in 10 countries, and a significant wholesale business. It has a $7.2 billion market cap.
- Cazoo, listed in August on the New York Stock Exchange, has an $5.4 billion market cap. Based in London, it’s announced plans to launch later this year in France and Germany, along with its U.K. operations. It has acquired Drover (U.K.-based) and Cluno (Germany-based) to offer car subscriptions.
Auto1 looks like it has the most to lose due to the consolidation. It may have to step up its game. It has expressed a cultural dislike of acquisition — it has never made an acquisition — and is at risk vs. competitors that are willing to acquire both strategically and tactically. It’s been in the pole position to win in Europe. That position is now at significant risk if Constellation can turbo-charge CarNext’s performance.
Another factor in the market: AutoScout24 in Germany last month launched Smyle, a dealer-friendly / dealer-sourced direct car sales brand. It’s embryonic and currently lists just 900 cars. Its ambition is to gain a decisive inventory advantage by bringing a large part of its dealer-base on board, and then use its huge traffic to drive sales. AutoScout24 is also strong in Italy and Benelux, the basis for a broader pan-Europe service. There’s also a question of if and how Mobile.de in Germany will enter the market, as well as the many other leading auto classifieds services owned by Adevinta, and those owned by Schibsted in the Nordics.
Constellation: Integrated operations
With the CarNext acquisition, Constellation will be an integrated b-to-b, b-to-c and c-to-b force that includes:
- CarNext, which is selling used cars to consumers at an annual run rate of 40,000, and another 210,000 on a digital b-to-b auction platform. It has a long-term supply agreement with LeasePlan for 250,000 “quality” used cars (low mileage / relatively new) annually. It sells cars to consumers in seven of the largest markets in Europe, and operates b-to-b auctions in 22 countries.
- Cinch, a business-to-consumer online used-car marketplaces in the U.K., launched just 12 months ago. It has about 5,000 used cars for sale in its inventory now, both from traditional dealers and from Constellation stock.
- WeBuyAnyCar, a used-car website in the U.K. that provides 16 million auto valuations a year and purchases hundreds of thousands of cars from consumers, some of which — higher quality / lower age cars — are now sold by Cinch.
- BCA, the b-to-b marketplace, operating in 14 countries and trading almost 1.7 million cars annually, whose remarketing businesses are a supply channel for Cinch and, we assume, CarNext.
TDR Capital, the London-based private equity company that owns the majority of Constellation, acquired the company in 2019 and took it private. Constellation raised funds this year from two sovereign wealth funds, Abu Dhabi Investment Authority and GIC of Singapore, as well as Neuberger Berman and Soros Fund Management LLC.
Constellation says it has €2 billion of “fresh capital” available to it, which suggests it may be €1 billion up on either AutoHero or Cazoo in spending capacity.