CDK Global to be acquired by investment firm in $8.3 billion deal

CDK Global Inc. said it agreed to be acquired by investment firm Brookfield Business Partners in a deal valued at $8.3 billion that would take the publicly traded dealership software giant private.

The dealership management system provider based in Hoffman Estates, Ill., said Thursday that Brookfield will purchase all of CDK's outstanding shares, with CDK shareholders receiving $54.87 per share in cash when the transaction closes, expected in the third quarter.

The price would reflect a 30 percent premium to CDK's closing share price on Feb. 18, which the company said was the last full day of trading before market speculation began about a possible sale. CDK shares rose 11.3 percent to close at $54.50 on Thursday.

Upon closing, CDK's stock no longer will be publicly traded.

"This transaction is an exciting next step for CDK that provides our shareholders with both certainty of value and a meaningful premium. It also allows CDK to continue executing our long-term strategy to connect our industry at every level and create an open and collaborative future," CDK CEO Brian Krzanich said in a statement. "In consultation with our outside advisors, CDK's board of directors carefully evaluated a range of strategic and financial alternatives over several months and determined that this transaction is superior to all other available alternatives."

Brookfield Business Partners is a unit of global alternative asset management firm Brookfield Asset Management's private equity group.

"Brookfield recognizes the unique value our products bring to more than 15,000 retail locations in North America and shares our vision of transforming the future of automotive retail," Krzanich said. "We are excited about the opportunity to further sharpen our focus on elevating the dealer and consumer experience when selling, buying or owning a vehicle."

Brookfield, in a news release, said CDK is attractive for its market leadership; its recurring, subscription-based revenue streams; the potential for upside amid consolidation in auto retail; and what it said are “meaningful opportunities” to improve CDK’s value.

“CDK Global is a high-quality and highly cash generative technology services and software business with a leading market position and strong fundamentals,” Doug Bayerd, Brookfield Business Partners’ managing director, said in a statement. “We are excited to grow our technology footprint with the acquisition of CDK Global, and we look forward to leveraging our operating capabilities to build on the company’s track record of providing best-in-class customer service and innovation.”

Brookfield said it will fund its investment with $3.5 billion in equity, with Brookfield Business Partners expected to invest roughly $500 million and the remainder coming from what it said are institutional partners.

It’s too early to tell whether CDK going private will result in an influx of capital it can use to improve its technology and products, and what the move will mean for dealerships longer term, said Matthew Gillrie, owner of the Gillrie Institute, which advises dealerships on DMS contract negotiations.

Gillrie said the hope would be “that they use this to make CDK even better and improve things, and it just spawns more competition.”

In the near term, he said, dealerships’ existing contracts with CDK should not change. But Gillrie said he has seen an increase in dealerships signing three-year DMS contracts, rather than five-year deals, even before CDK’s acquisition announcement in part because dealerships want flexibility to react to new market entrants and updated technology.

CDK’s sale may contribute to “an increase in an already healthy market of people wanting shorter-term contracts,” Gillrie said.

CDK has expanded beyond its core DMS business, which had 9,181 automotive customer sites as of Dec. 31, into other dealership software products. In June, CDK acquired digital retailing provider Roadster for $360 million. Also last year, CDK acquired Salty Dot Inc., an insurance technology company that allows consumers to buy auto insurance at the same time they buy a vehicle.

The company also has divested business units to focus on its core North American software market. In April 2020, CDK completed the sale of its digital marketing business, which included dealership websites, to Ansira Partners Inc., a marketing agency owned by private equity investors. And in March 2021, CDK sold its international business to private equity firm Francisco Partners for $1.45 billion.

CDK’s leadership team has done a good job investing in growth, including through its recent acquisitions, but that investment also affected growth of the company’s adjusted EBITDA, said Gary Prestopino, managing director at Barrington Research, who follows CDK.

“When you’re a public company, you’ve got to satisfy shareholders with growth of earnings consistently, and there’s always fits and starts when you’re in an investing growth mode,” Prestopino said.

“This is the best possible outcome, I think, for the executive team of CDK in terms of taking it out of the public eye, being able to build this thing over the next couple years without having to worry about meeting quarterly investment expectations,” he said. “And in a couple of years, they may have it where they need it to be, and they may take it public again or it may be a private equity trade.”

CDK said Morgan Stanley & Co. is its financial adviser and Paul, Weiss, Rifkind, Wharton & Garrison is its legal adviser. Davis Polk & Wardwell is legal adviser to Brookfield Business Partners.