CDK Global completes sale to Brookfield—what does this mean for dealer partners?

Welcome to this episode of The Friday 5 with Steve Greenfield, Founder and CEO of Automotive Ventures, an auto technology advisory firm that helps entrepreneurs raise money and maximize the value of their companies.

CDK Global completes sale to Brookfield Business Partners

This week, Greenfield digs into the implications of private equity player Brookfield Business Partners acquiring CDK Global and taking it private.

CDK Global just last week completed its sale to Brookfield in a roughly $8.7 billion dollar transaction. CDK’s stock is no longer publicly traded.

Typically, in these types of deals, the Private Equity investor tries to minimize the equity check they have to come up with, by leveraging the company up with as much debt as possible. So it’s less about trying to lay out a plan to double revenue than it is about putting as little money down as possible and then using earnings over time to pay down the debt taken on to acquire the asset.

What is typical is a five to seven-year “hold period” after which the PE firm either sells to another PE firm or takes the company back public.

Brookfield is no stranger to the automotive retail category. Up until recently, it held Capital Automotive, a provider of real estate financing for auto dealerships, until it sold the company for $3.8 billion dollars in February.

After a three and half year hiatus, Brian MacDonald has returned to CDK Global in his former role as CEO. He replaces Brian Krzanich who replaced him back in November 2018. MacDonald led the company from January 2016 to November 2018.

CDK’s board of directors, including Krzanich, resigned from their board positions upon completion of the sale.

CDK Global made several other executive changes including:

COO Joe Tautges remains with the company as a special adviser to the CEO, but the COO role has been eliminated.

Amy Byrne, chief human resources officer, left her role last week. Amy Smith, previously vice president of human resources for the sales and operations organization, has been named the new head of human resources.

CFO Eric Guerin will depart Friday, July 22. Vlad Dvoskin, vice president of finance, will be interim CFO during a search for a permanent successor.

The company announced that there will be additional management changes and likely some refocusing of personnel and assets.

Ron Frey, who was CDK’s executive vice president and chief global strategy officer from 2017 to 2019, has also returned to the company as part of the new investment team and is on the board of directors, which includes MacDonald and members of the Brookfield team.

So what implications might dealers feel who are customers of CDK?

MacDonald says the company is committed to investing in its technology to help dealerships sell and service vehicles and does not plan to waver in its support of its customers.

CDK’s stock no longer is publicly traded, so CDK’s financial information won’t be broken out and reported on.

Being private should allow CDK to make long-term investments, and not be beholden to the typical quarterly cycle of public companies.

The company has reported its focus is going to be on four key areas:

First, continue to invest in modernizing the technology.

Second, improve the dealer experience by making it easier to do business with CDK.

Third, rationalize the data strategy leveraging CDK’s data assets including its third-party access program, Fortellis, and its Neuron Data Management solution — look for CDK to develop a comprehensive strategy that delivers better value to its dealer and OEM customers.

And fourth, evaluating and prioritizing previous and future investments and acquisitions.

There will be pressure to grow revenue and earnings. However, there will be less quarterly pressure than public companies typically feel, and they should have more ability to focus on longer-term strategic initiatives.

There are rumors that some of the more recent acquisitions may be put back on the market and divested.

In addition, the company will phase out some older products, MacDonald said, including the cloud-based Drive Flex DMS product in favor of modernizing its broader DMS platform.

It’s very likely that they’ll look at ways to increase both dealer count and the average spend per dealer per month. Both of which could be a challenge given that they’re already at 9,181 dealers paying $9,369 per month, and are much larger than any other software vendor in the AutoTech space.

A key part of this story is Brookfield’s confidence in the dealer model as seen in its $8.7 billion dollar investment.

The dark horse to watch in the DMS race is Tekion, who raised $250 million dollars last October at a valuation of a reported $3.5 billion. They bring a more cloud-based approach that is refreshing to many of the OEMs (some of whom have invested in the company) as well as dealers, who have been looking for an alternative to the legacy players for some time.

I’ll continue to keep my eyes out for new developments in the DMS space and on CDK Global in particular and report back here on the Friday Five as further developments emerge.

If you have specific thoughts in this area, please shoot me a note. I’d love to discuss it with you.

If you have specific thoughts on this question, please shoot me a note at steve@automotiveventures.com. I’d love to discuss it with you.

Companies to watch

Every week we highlight interesting companies in the automotive technology space to keep an eye on. If you read my monthly industry Intel Report, I showcase a few companies each month, and we take the opportunity here on the Friday Five to share some of those companies each week with you.

Today, we have two companies to watch: LoopMeIn and Preteckt.

LoopMeIn

LoopMeIn claims to be the industry’s only complete preowned life cycle management software.

They have over 75 years of combined industry knowledge from nearly every aspect of dealership life which led the company to create an application to make everyone’s life in the dealership easier, more efficient, and more reliable.

The company focuses on reconditioning management, vendor management, embedded communication tools, vehicle inspections, and centralized invoicing, connecting everything together in one application.

The reason that I love LoopMeIn is that most of the innovation over the past 20 years has been on the variable side of dealership operations. It’s great to see new and innovative companies focused on one of the dealer’s largest profit centers, Fixed Operations.

You can check out LoopMeIn at www.LoopMeIn.app.

Preteckt

Preteckt is an AI and IoT company focused on maintenance to increase vehicle availability, improve safety, reduce costs, support maintenance staff, and enable the future of work. It allows technicians to identify and get to root causes 40% faster.

Preteckt develops next-generation sustainable fuel vehicle technology and helps service providers transition from legacy to green technologies.

Maintenance, maintainers, and digital workflow is their initial focus area.

The reason I love Preteckt is that with all of the data now being captured from connected cars, it’s exciting to see an emerging wave of companies focused on harnessing all of that data into intelligence around predicting when key components might fail and predicting service opportunities.

You can check out Preteckt at www.Preteckt.com.

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So that’s your weekly Friday 5, a quick wrap-up of the big deals in the automotive technology space over the past week.

If you’re an early-stage automotive technology entrepreneur looking to raise money, or an entrepreneur who is trying to decide whether and when they should raise money or sell their business, I’d love to speak with you.

Thank you for tuning into CBT News for this week’s Friday Five, and we’ll see you next week!