Reynolds, CDK, Cox Automotive looking at acquisitions in 2023

Reynolds and Reynolds Co., Cox Automotive and CDK Global are all seeking or contemplating new acquisition deals in 2023 as they work to modernize their offerings. And they may have their pick of potential targets because of a tough fiscal environment for startups.

Leaders of the three biggest retail technology companies confirmed to Automotive News that they're looking to buy other companies or products or are at least open to opportunities should they arise. While none offered details, they'll likely target dealer management software technology that includes legal compliance, consumer data platforms, robotic process automation and new-vehicle inventory tools, said Steve Greenfield, CEO of venture capital firm Automotive Ventures.

"The three legacy DMS providers have the benefit of thousands of existing paying dealer customers and are thus ideally positioned to acquire 'tuck in' acquisitions to cross-sell into their installed dealer base," Greenfield told Automotive News via email.

What's more, technology startups face a challenging fundraising environment, which could increase pressure to sell to buyers such as the major dealership management system providers, Greenfield said.

"Many startups will face an unfriendly reception for raising funds this year, and for those who haven't been able to reduce costs and get their [cash burn rate] under control, they may be forced to liquidate and sell out," he said.

Even upstart DMS provider Tekion will be watching for available technology that could be an asset.

"While we will not be actively going out and looking for acquisitions, we will be keeping our eyes open and looking at acquiring products and/or companies to enhance value for our customers and help accelerate our growth," Tekion CEO Jay Vijayan said in an email statement provided to Automotive News.

Here's a breakdown of the stated plans from Reynolds, Cox and CDK.

Reynolds was first out of the deal gate for 2023 on Jan. 26, announcing during the NADA Show in Dallas that it acquired American Guardian Warranty Services, a provider of vehicle service contracts and other finance and insurance products and services. Reynolds President Chris Walsh earlier told Automotive News the company would be "acquisition focused" in the coming months.

"There will be acquisitions that we make in 2023," Walsh said. "Everything has to align in order to make those things happen, but our intent is to announce more acquisitions."

Walsh added that acquisition targets would generally be around "the things we're focused on, which is the consumer experience." Reynolds, he said, is seeking technology that will enable dealership customers "to either plug holes or enhance products that they have to provide a better experience for their customers."

Reynolds acquired two companies in 2022.

Cox Automotive President Steve Rowley said that Cox regularly looks for potential acquisition targets and will continue to do so. The company made two acquisitions in 2022.

"I am always looking at opportunities that can enhance the products and gaps, so mergers and acquisitions are a big part of what we do," Rowley told Automotive News during the NADA Show.

He added that Cox has spent "a lot of time" on the issue, "thinking about what it is that we can do to enhance our business better than it is today."

CDK CEO Brian MacDonald also told Automotive News during the show that the company will continue looking at acquisitions in 2023. He declined to discuss specifics, however, or speculate about the types of companies or kinds of technology CDK is seeking.

CDK was sold for $8.3 billion to investment firm Brookfield Business Partners, which took the company private in a deal that closed last July. CDK didn't make any acquisitions in 2022 but closed four deals over the previous few years — three in 2021 and one in 2018, according to a company spokesperson.

Doug Bayerd, managing director of private equity at Brookfield, said in August that plans for CDK in part call for acquiring other software products that can be added to the company's DMS platform.