Online automotive classifieds businesses iCar Asia Ltd (ASX: ICQ) and Carsales.Com Ltd (ASX: CAR) announced an extension of their strategic relationship this morning, which some investors might see as bringing the two companies together.

Others might take the less charitable view that Carsales is protecting its significant shareholder interest in iCar Asia from potential future dilution (as a result of capital raisings, for example).

Here’s the substance of the announcement:

  • Extension of the strategic relationship agreement for 3 years
  • Commitment to sharing knowledge, technology and Intellectual Property (IP)
  • iCar to receive royalty-free license to use Carsales’ Redbook data
  • iCar will provide royalty-free ‘live-market’ listings data to Redbook
  • Carsales will continue to nominate one person to the iCar board
  • Agreement is conditional upon the ASX granting a waiver to Listing Rule 6.18 which will enable iCar to grant Carsales a ‘top-up’ right, enabling Carsales to maintain its percentage holding in iCar

So What?

First, I note that the announcement is flagged as ‘market sensitive’ by iCar and ‘non-market sensitive’ by Carsales – and that does a pretty good job summing up who gets the immediate benefits. Access to Redbook data should materially enhance iCar’s website offering and competitive position in its markets without hurting cash flows. Likewise, Carsales gets the right to maintain its shareholding (pending approval) in iCar, which would be at risk if the former requires more capital before becoming cash-flow positive.

Presumably, the access to live markets data will also eventually give Carsales a powerful selling tool for its Redbook product. If iCar remains the leading classifieds website in Malaysia, Thailand and Indonesia, analysis of its market listings should provide fairly comprehensive data on vehicle sales in these countries over time. As hinted at by the fact that it is a non-sensitive announcement, the deal is unlikely to materially affect Carsales in the short term.

Now What?

Today’s announcement affirms Carsales’ interest in iCar Asia, which provides some level of support for the latter. The former’s knowledge and Redbooks data is likely to come in handy for iCar, which faces a stiff challenge in becoming cash-flow positive by the final quarter of 2017 – which could require a virtual doubling of sales from this point.

Today’s announcement is good news all around however, and I remain a happy direct shareholder in both Carsales and iCar Asia.

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Motley Fool contributor Sean O'Neill owns shares of carsales.com Limited and iCarAsia Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.