With Completion Of Spinoff, CDK Global Drives Off On Its Own, Leaving ADP Behind

Panicked Automatic Data Processing (ADP) shareholders need not worry about their stock appearing on many ‘Top Losers’ lists yesterday. Yes, the company declined a lot, but that was due to yesterday being the first day of trading following the spinoff of its dealer services business CDK Global (CDK). ADP shareholders should have received one share of CDK for every 3 shares of ADP owned. The new company generates ~$2b in sales and is ‘a leading global provider of integrated information technology and digital marketing/advertising solutions to the automotive retail industry.’ The company highlighted its two main offerings or ‘solutions’ in its recent roadshow presentation:

  1. Automotive Retail – 80% of its revenue with strong (25%) EBIT margins but slow growth (domestically – internationally it is growing quite nicely) and
  2. Digital Solutions – 20% of its revenue, but growing rapidly (20% yoy) albeit with lower margins

It’s worth noting that those EBIT margin numbers are a bit inflated due to the exclusion of numerous items such as corporate allocations which it will now have to absorb as an independent entity. I recommend reading the entire presentation and the most recent Form 10 for a much better breakdown of the business and its future opportunities. Steve Anenen, CDK’s President and CEO noted that “this is a monumental day in our history and marks the next step of our journey…there are many driving forces impacting this industry — consumers expecting an improved buying and service experience, and dealerships and manufacturers who see the value of innovative technology to improve productivity and profitability. As the global technology partner of choice, we are well positioned to provide ‘mission critical’ digital marketing and retail technology services to move this industry faster forward.”

The parent company will remain focused on its human capital management business. Here is Carlos Rodriguez’s, ADP’s President and CEO, take on the spinoff:

With the completion of the spin-off, ADP’s ongoing operations will be squarely focused on our global HCM strategy, where our solutions already enjoy a leading position…this, combined with our scale and focus on innovation, will enable us to devote our full attention to developing solutions for our client’s most challenging HCM needs. By creating value for our customers, we anticipate continuing ADP’s tradition of creating value for our shareholders.

Looking ahead, Forbes highlighted cloud services and new ACA compliance as future areas of growth for the new ADP. Hey, maybe its National Employment Report will take off?

CDK Global currently trades on the NASDAQ under the ticker ‘CDK’ and will be a part of the S&P Midcap 400 index. For additional information, check out all of our earlier coverage of the transaction.

Disclosure: Author holds no position in any stock mentioned.