AutoTrader has pulled its registration for an IPO. The lead underwriters on the deal included Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS).
Founded in 1997, AutoTrader has turned into a top online marketing platform for automotive dealers. The company also owns the Kelley Blue Book brand, which provides valuations for cars.
So why pull the IPO? Well, first of all, the growth ramp was a bit ordinary. For the first half of 2012, revenues climbed by 15% to $563.1 million, and profits were up 29% to $41.6 million.
Another warning sign was that — last summer — AutoTrader borrowed about $400 million to pay a dividend to its insiders. As a result, the debt load increased to $1.3 billion.
It’s true that AutoTrader generates enough cash flow to handle this debt. But the company has fierce competitors, which could put pressure on margins. And that could make it tougher to meet the ongoing debt payments.
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “How to Create the Next Facebook” and “High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders.” Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
A long-time follower of the IPO scene, back in 1999 Tom started one of the first sites in the space called WebIPO. It was a place where investors got research as well as access to deals for the dot-com boom. Tom also wrote the top-selling book, Investing in IPOs. In it, he covers all the aspects of analyzing an IPO, such as reading the prospectus, detecting the risk factors and understanding some of the arcane regulations. But don’t worry — if that process is too intimidating for you, thankfully Tom will do the legwork for you right here in the IPO Playbook blog.
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