CDK, Reynolds make big bets on future of digital retailing

CDK Global Inc. and Reynolds and Reynolds Co. are making a strong bet that online sales will remain a critical function for U.S. dealerships as the economy emerges from the pandemic.

The two dealership management system giants each bought a company that specializes in digital retailing software, in deals that became public within a week of each other.

On June 2, publicly traded CDK said it paid $360 million in cash for Roadster, of Palo Alto, Calif., while privately held Reynolds and Reynolds said Tuesday, June 8, that it is acquiring Gubagoo, of Boca Raton, Fla., for an undisclosed amount.

Both CDK, of Hoffman Estates, Ill., and Reynolds, of Dayton, Ohio, say the tools add more robust functionality than they previously offered to dealerships. Executives say the acquired businesses will grow because of the tie-ups, and the digital retailing products won't be exclusive to dealerships that use CDK's or Reynolds' DMS platforms.

When you start a company, "you always have an exit in mind," said Gubagoo CEO Brad Title, who will continue to run Gubagoo as its president under an independent brand within Reynolds. "It's a dream come true to have a global leader in this space want to have us be a part of their solution and their vision."

Gubagoo was founded in 2010 as a chat provider and expanded into virtual retailing about four years ago, Title said. Its technology powers Asbury Automotive Group's Click- lane omnichannel retailing tool, which launched last year. Omnichannel retailing refers to a seamless transaction whether buyers are online, at the dealership or using some combination to make a purchase.

Title said joining Reynolds will allow the company to access the resources needed to expand the reach of its retail tool.

Roadster was founded in 2014 and shifted its business model two years later from a consumer-focused company to one that works with dealerships. Its products include Express Storefront, which enables an omnichannel buying experience, as well as chat and lead response tools.

Gubagoo employs 443 people and counts more than 5,200 U.S. dealership customers. Roadster has 158 employees and works with nearly 2,000 dealerships.

Analysts who watch auto retail say CDK's and Reynolds' acquisitions make sense given how online auto sales accelerated during the pandemic, and the DMS companies now can quickly scale the technology as a complement to their product suites instead of building it internally.

"I think it's an example of kind of buying your competition out while you still can afford to, rather than letting them get too big and too powerful," said David Whiston, a U.S. autos equity analyst with Morningstar Research Services in Chicago.

"They need to have digital capabilities, and rather than try to come up with their own systems and spend all that time and money, you can just buy the expertise of one of these other companies and then integrate it," Whiston said.

Kasi Edwards, Reynolds' senior vice president of marketing, told Automotive News that the company was attracted to Gubagoo for its product innovation, growth, employees and vision.

"The products and solutions that Gubagoo brings to the table are solutions that we have not brought to market, so they definitely help round out our portfolio," Edwards said.

CDK will use its Fortellis open network development platform to better link Roadster into dealerships' back-end systems to make the customer experience of transitioning between in-store and online more seamless, executives said.

CDK has not detailed its plans for its existing online retailing tool, Connected Store, which offers payment and quoting capabilities and is used by about 1,000 dealership customers. COO Joe Tautges, however, said CDK ultimately will have "one modern retailing process."

Gary Prestopino, managing director at Barrington Research in Chicago, who covers CDK, said he believes the Roadster purchase signals that the company likely will phase out Connected Store.

"They're not going to spend the money on something like [Roadster] and not have it proliferate through their ecosystem," Prestopino said, adding that digital retailing capabilities are now "mission-critical" products.

Opening up Roadster and Gubagoo products to any dealership, regardless of which DMS provider they use, will be important to avoid missing out on potential customers, analysts said.

Roadster CEO Andy Moss, who will lead product and engineering for Roadster and work more broadly on CDK's efforts to build what it calls a modern retail product strategy, said Roadster will maintain its "Switzerland approach" to working with dealerships regardless of their DMS provider going forward.

CDK and Reynolds executives said it was too soon to say whether the companies' DMS customers would get preferred pricing or other unique features for using the digital retailing tools.