Online Used Car Seller Vroom Raising $95 Million To Acquire Texas Direct Auto

Vroom, the New York-based online used car seller, is gearing up for an acquisition to expand its reach.

The company has raised $95 million to fund its proposed purchase of Texas Direct Auto, a Houston-based car refurbisher that was founded in 2002 and has since become the top seller on the eBay Motors website. This is a big move for Vroom, whose business will reach $300 million in revenue this year, according to CEO Allon Bloch. When combined with Texas Direct, the two companies will become a $900 million business.

Vroom hasn’t disclosed the participants in its latest funding round, explaining that the acquisition still requires regulatory approvals. Earlier this year, the company raised $54 million from investors that included Catterton, T. Rowe Price and NFL Hall of Famer John Elway.

The company’s CEO noted he is interested in utilizing Texas Direct’s expertise in reconditioning gently used cars at two warehouses in Houston and Dallas.

“They’ve got sophisticated software and can recondition very efficiently,” said Bloch. “We hope to sell several hundred million dollars’ worth of cars a year from a single facility.”

Vroom currently operates one such facility in Indianapolis, and plans to eventually add at least one on the east coast and west coast as it seeks to create a national footprint. The U.S. used-car market is a massive opportunity for tech disrupters such as Vroom, as last year’s sales totaled a staggering $500 billion.

To remain competitive with its rivals, such as Shift, Beepi and Carvana, Vroom has been spending heavily to develop a high-tech platform that allows users to buy, sell and arrange financing for used vehicles completely online.

“We’ve taken a more disruptive approach around selling the cars online completely,” said Bloch. “With Texas Direct, you can pick it up. We encourage people to sit at home and wait for the delivery.”

As opposed to connecting buyers and sellers through a marketplace like other car sites, Vroom buys cars online, reconditions them at a 22-acre facility, and subsequently sells them from its website. The company also delivers the vehicles to customers for free. One of Vroom’s primary goals is to ship cars to customers throughout the U.S. within 48 hours of purchase. At the same time, those cars must be in great condition since the company also provides a seven day money back guarantee, with a no-questions-asked return policy and a 90 day bumper-to-bumper warranty.

Perhaps the acquisition of Texas Direct will help Vroom to overcome the challenges that are involved in the process of reconditioning the cars that it buys from consumers. Bloch explained that Texas Direct has developed software that turns this highly complicated task into an efficient and quick process.

“The faster you can get the car in shape, the faster you can sell it, and deliver it to customers,” said Bloch. “And you need to do it without cutting corners because otherwise the customer will end up sending the car back. Texas Direct has developed a workflow that allows you to efficiently route these cars. I don’t think there’s anyone even close in capability of the reconditioning software and services they’ve built.”