Wheeling & Dealer-ing! ADP Sets Spinoff Of Dealer Services Business CDK Global For End Of September

ADP (ADP) will spin off its dealer services business, CDK Global, on September 30th to shareholders as of September 24th. The new company will trade on the NASDAQ under the ticker ‘CDK’ and ADP shareholders will receive 1 share of ‘CDK’ for every 3 ADP shares owned. The dealer services business is ‘the largest global provider…of integrated information technology and digital marketing/advertising solutions to the automotive retail industry’ and has seen its business improve over the past few years as the automotive industry has rebounded. According to the latest Form 10, the business generated over $1.9b of revenue in FYE ’14 and appears to have solid margins. Interest charges will go up though as the company will be raising a whole lot of new debt in order to finance an over $800m payment to ADP. The new company will be led by the current President of the dealer services segment, Steve Anenen.

ADP reached back into its past in choosing a new name for the standalone entity and ‘CDK’ is actually an acronym for its largest historical businesses:

The “C” stands for Cobalt Digital Marketing, a leader in the fast-growing digital marketing space.    Acquiring Cobalt several years ago represented a whole new dimension of Dealer Services’ business that the company wasn’t fully addressing.

For the critical centerpiece of the name, Dealer Services chose “D” to represent Dealer Services and its 40 years of experience.  This is the foundation of the business, which offers integrated management and technology solutions primarily to automotive dealers and manufacturers, and also to heavy truck, motorcycle, RV, marine and heavy equipment clients.

The “K” represents Kerridge Computer Company, which was a UK-based company acquired in 2005.  The Kerridge acquisition was a strategic decision to greatly expand Dealer Services’ geographic footprint and demonstrates its commitment to becoming a global provider.

The marketing didn’t stop there though as the company also has a brand new logo depicting the company name alongside a green-lit traffic light. It was chosen because it ‘represents a commitment to progress and always moving forward, as well as optimism and opportunity. While the new name of the company honors CDK Global’s history, the logo and branding represent an entirely new look and feel for the company.’ Striking that fine balance between honoring the past, but also moving forward into the future. Bravo! It really must be fun to come up with this stuff.

The remaining parent company generated over $11b in sales during FYE ’14 and will focus on its ‘Human Capital Management’ business which includes services such as paycheck processing. There are some concerns about future growth, but this Forbes piece highlights cloud-based products and ACA-related business as future growth drivers. Although its credit rating was cut by Moody’s from AAA as a result of the spinoff announcement, ADP will help future earnings by buying back a nice amount of stock with the proceeds from CDK’s debt.

Disclosure: Author holds no position in any stock mentioned