Cliff Banks - The Banks Report

Former CEO Takes CDK Global Into New Era

July 12, 2022 — After a three and half year hiatus, Brian MacDonald is returning to CDK Global in his former role as CEO. He replaces Brian Krzanich who replaced him in November 2018.

CDK is expected to make the announcement this morning. The move follows last week’s $8.7 billion sale to investment firm Brookfield Business Partners. CDK’s board of directors, including Krzanich, resigned from their board positions upon completion of the sale.

The Banks Report talked with MacDonald, Doug Bayerd, Brookfield Business Partners’ managing director, and Ron Frey, newly appointed CDK board member, via Zoom in an exclusive interview minutes after the transaction closed last Wednesday.

New Era

Even though Brookfield is bringing in an old name to run its latest acquisition, it is a new era at CDK, which is the leading dealer management system provider in the auto retail industry.

MacDonald is taking the helm of a much different CDK than the one he took over at the end of 2015. At the time, CDK was a publicly-traded company under pressure from three aggressive activist investment firms which had just published a letter to CDK’s board pushing a plan focused on increasing margins and profitability via heavy cuts.

MacDonald executed the plan to near perfection. He avoided a board proxy fight with the activists while improving profitability. He tried to take the company private on at least two occasions, but rumors of pending deals pushed the stock price up to a level that made it impossible to get a deal done.

The activist firms, happy with their investment, sold their shares and moved on. Having done his job, MacDonald also exited the company. CDK’s board then named former Intel CEO Krzanich as president and CEO.

Following Brookfield’s acquisition, CDK is now a private company which is where MacDonald thinks it belongs.

“I’ve always felt that the best place for CDK is as a private company,” he tells TBR. “The competitors are private. Most of the customers are private. And I think with all the changes going on in the industry both at the dealer level and the OEM level I think it’s a good place for CDK. It’s better than being public. So now we can make long-term investments. We can make trade-offs. And we don’t have to be on the quarterly cycle of public companies.”

Clearly, MacDonald has a plan that is different than the one he had to execute during his previous tenure. He knows the company intimately, likes the industry and engaging with customers. He also is part of the new investment team having made a sizable personal investment with the new ownership.

There will be additional management changes and likely some refocusing of personnel and assets, but his marching orders now are more dealer-focused. “We want to deliver for our dealers a software platform that’s holistic, that’s scalable, and a suite of technologies that let the dealers sell and service more cars and have better relationships with their retail consumers and their OEMs,” he says.

Employees and customers are going to hear the term “fit and focus,” from CDK management. The focus is going to be on four key areas:

  • Continue to invest in modernizing the technology.
  • Improve the customer (dealer) experience by making it easier to do business with CDK.
  • Rationalize the data strategy leveraging CDK’s data assets including its third-party access program, Fortellis, and its Neuron Data Management solution — look for CDK to develop a comprehensive strategy that delivers better value to its dealer and OEM customers.
  • Evaluating and prioritizing previous and future investments and acquisitions. MacDonald declined to talk specifically about areas the company might be looking at for acquisitions but did admit he’s “already kicking tires in key properties.”

Big Bet Shows Confidence in the Dealer Model

A key part of this story is Brookfield’s confidence in the dealer model as seen in its $8.7 billion investment. Bayerd, who oversaw the acquisition says Brookfield will continue to invest in the company. “It’s not a ‘one-and-done’ for us. We don’t walk away.”

He knows the argument that the dealership model will be disintermediated but says, “We think it couldn’t be further from the case. The dealer performs an incredible value-added service and is symbiotic with the OEM. The dealer is the cheapest form of transport for that last mile to get to the consumer. The dealer also provides a nationwide network of service centers, it’s not just selling the car. And it also is a great way to maximize the value of used cars with a certified pre-owned type of model.”

Ron Frey, who was CDK’s executive vice president and chief global strategy officer from 2017 to 2019, has also returned to the company as part of the new investment team and is on the board of directors, which includes MacDonald and members of the Brookfield team.

“It (the $ 8 billion-plus check) should give our customers the vote of confidence that we’re all in with them; we’re all in in a big way,” he says. “And while they’re going to evolve, we all agree that the industry is going to evolve, they’re going need modern software solutions that help them sell and service unlike ever before, and their success is our success.”

CDK also announced this morning that Eric Guerin is resigning his position as CFO on July 22, while Joseph Tautges has moved from the COO role to that of special advisor to the CEO.

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