May 24, 2017 — CDK Global is announcing this morning that it is acquiring Auto/Mate Dealership Systems.
The move, which will further consolidate the dealer management system (DMS) space, should be completed in late summer once the regulatory process runs its course. Financial terms for the deal have not been disclosed yet.
Auto/Mate was started as a F&I system for dealers in the 1970s by Wang Laboratories. At one point, more than two-thirds of dealers in the U.S. used a Wang computer system. Consultant Steve Fullum acquired the rights to Auto/ Mate when Wang declared bankruptcy in 1992.
Mike Esposito has led the company since Fullum’s passing in 1999. Under his leadership, the company has grown to just under 200 employees serving more than 1,200 dealerships.
The acquisition is a bold move for CEO Brian MacDonald. CDK is 11 months into an aggressive restructuring of its operations which has resulted in margins increasing from 25.6% in its third quarter fiscal year 2016 to 32.4% this year. Management projects a 35% margin by the end of its fourth quarter (June 30, 2017) and 40% for fiscal year 2018.
It’s the second acquisition for CDK since it was spun off from ADP in late 2014. (In January 2016, the company acquired RedBumper, LLC and NewCarIQ, LLC).
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CDK, with more than 14,600 DMS clients in North America (includes U.S. and Canadian car, heavy truck, heavy equipment and recreational vehicle dealerships), is the clear leader in the space, but saw its position on the lower end of the market begin to erode last quarter.
In the company’s most recent earnings call, MacDonald admitted to analysts that management was not happy with those losses would look at actions to strengthen its position in the lower end of the market.
The acquisition of Auto/Mate solves that problem for CDK. Auto/Mate, with its 1,200 dealership clients, is the leader in the lower end of the market. Many of the dealerships are single-point stores not part of any groups.
In addition to strengthening its position with smaller dealerships, the move also gives CDK a significantly increased customer base to which it can its sell websites and other layered applications.
The acquisition also will increase pressure on other DMS vendors, such as DealerTrack and AutoSoft. Whether CDK’s move will lead to more consolidation among other players is doubtful. The DMS space is not known for much consolidation. Since 2000, there have been few acquisitions of DMS providers and only two that involved competitors UCS’ purchase of Reynolds and Reynolds in 2008 and ADP Dealer Services Group’s acquisition of EDS Dealer Solutions in 2001.
The other two deals involving a DMS are:
- Dominion Dealer Solutions acquired Automotive Computer Services (ACS), a small DMS in Alabama in 2011.
- Cox Automotive acquired DealerTrack in 2015.