Feds reject CDK's purchase of Auto/Mate

CDK Global Inc.'s planned acquisition of Auto/Mate, a smaller provider of dealership management systems, has been blocked by the Federal Trade Commission, the companies said Tuesday.

The move would have bolstered CDK's positioning in the market serving smaller dealership groups, and removed a smaller rival whose business model was predicated on scooping customers from CDK and the other DMS giant, Reynolds and Reynolds, in part through lower prices and less restrictive data-access policies.

CDK and Auto/Mate signed an agreement last April outlining terms of a sale that was subject to FTC approval, Auto/Mate said. But after an 11-month review, Auto/Mate said in a statement, "the FTC decided that it was in the best interest of auto dealers to have Auto/Mate remain as a strong competitor in the marketplace."

Auto/Mate said the FTC dug into documents from CDK and Auto/Mate and spoke to a variety of industry players, including dealers, competing companies, consultants and CDK employees, as well as Auto/Mate CEO Mike Esposito and Larry Colson, the Albany, N.Y., company's managing partner.

Reasons why

In a separate letter to employees obtained by Automotive News, Auto/Mate laid out several reasons why it believes the deal was denied.

• The company said, "Our reputation, which we have all so carefully built and nurtured, is strong. Reputation is a key factor in the customer's purchase decision, and a reputation as good as ours would not be quickly replaced in the market."
• Auto/Mate is also "a competitive threat to CDK, and CDK's move to purchase us was defensive in nature, and thus anti-competitive."
• Auto/Mate's "data integration strategy with Open/Mate, including the low price and willingness to work with all parties to let the dealer use their data is a key differentiator."
• "We are seen in the market as a maverick and a disruptor, both of which are pro-competitive."
• Its product architecture, Auto/Mate said, "was considered by many to be superior and positioned us to scale our system to support large dealers."

Not for sale

Auto/Mate says it is no longer for sale and that shareholders are not considering any other offers.

In its statement, CDK said both companies were disappointed at "not being able to complete the transaction in a timely fashion" and decided to "redirect their resources and attention to their businesses." The Hoffman Estates, Ill., company noted that under the original terms of the agreement, there will be no termination fee.

Auto/Mate said they could have chosen to fight the decision in court, and thinks it could win, but "this fight could take 4-5 months and cost a fortune."

"It seems that the FTC thought we were too unique and too well-positioned to grow and compete, and that allowing CDK to acquire us would take out the only viable competitor to them outside of R&R," Colson said in the statement. "Our story has always been one of David vs. Goliath and now we are back to doing business as usual, much to the delight of our customers and employees."