CDK Said to Field Expressions of Interest From Buyout Firms

Updated on
  • Carlyle, Apax, Advent and TPG said to be interested in CDK
  • Group of banks said to offer $6 billion in financing

CDK Global Inc. is accepting expressions of interest from select private-equity firms this week, said people with knowledge of the matter, even as some shareholders urge the company to formally explore a sale effort and undertake a broader competitive auction.

The company, spun off from Automatic Data Processing Inc. last year, is working with Morgan Stanley to explore the potential for a sale after receiving unsolicited interest, people familiar with the matter said in August. Its board may review any bids as soon as this week, two of the people said.

In an unusually limited process, Hellman & Friedman and Blackstone Group LP are among a small group of buyout firms that have been allowed to review financial details of the company, which provides information technology to auto dealers, the people said. Blackstone is unlikely to bid, one of the people said. Carlyle Group LP, Apax Partners, Advent International and TPG have sought so far unsuccessfully to access that data for their own potential bids, said the people, who asked not to be identified because the information is private.

A group of banks has offered up to $6 billion to finance a leveraged buyout of CDK, one of the people said. Potential lenders include Credit Suisse Group AG, Deutsche Bank AG, JPMorgan Chase & Co. and Jefferies Group, the person said.

Representatives of CDK and Morgan Stanley declined to comment. Spokesmen for Apax, Hellman & Friedman, TPG, Carlyle, Advent and Blackstone declined to comment.

Representatives for the banks declined to comment.

Hedge Funds

CDK generates more than $2 billion in revenue annually, providing technology to more than 26,000 automobile and heavy-equipment dealers worldwide. The shares climbed as much as 6.5 percent to $53.18 in New York, giving the company a market capitalization of more than $8 billion. A takeover offer including even a small premium would be the largest leveraged buyout this year, surpassing Carlyle Group’s recent $8 billion agreement to buy Symantec Corp.’s Veritas unit.

On Wednesday, CDK disclosed in a regulatory filing amendments to its severance plan for corporate officers in the event of a change in control.

Private equity may find the company attractive because of its strong recurring cash flows and the opportunity to substantially cut costs following its recent spinoff, people familiar with the situation have said previously. CDK’s smaller competitor is Reynolds & Reynolds, a company taken private by Vista Equity Partners in 2006, which Vista sold in 2014.

CDK quickly attracted activist hedge funds among its biggest shareholders within its first year of public trading. Sachem Head Capital Management and Elliott Management Corp., as well as Fir Tree Inc., are in its top five holders, with many others disclosing smaller stakes. Some of the hedge fund owners have been pressing the company to run a formal auction to maximize the potential sale prices, three of the people said.