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From Antitrust Law Daily, March 20, 2018

Auto software vendors’ merger crashes after FTC challenge

By Jody Coultas, J.D.

CDK Global, Inc., which provides auto dealer software and integrated technology solutions to car, truck, boat, and heavy equipment dealers, abandoned its proposed acquisition of competitor Auto/Mate, Inc. today in light of an FTC challenge to the transaction. The FTC issued an administrative complaint alleging that the proposed merger, which was announced in May 2017, would violate federal antitrust laws (In the Matter of CDK Global, Inc., FTC File No. 171 0156).

New car dealers use Dealer Management System (DMS) software to manage their business, including for accounting, payroll, parts and vehicle inventory, service repair scheduling, and vehicle financing. Because franchise DMS software manages the flow of information between dealers and vehicle manufacturers, franchise DMS providers must obtain certifications from those vehicle manufacturers. CDK is the largest provider of DMS software in the United States.

The FTC alleged that the proposed merger would reduce competition in the concentrated DMS software market, eliminate current competition between CDK and Auto/Mate, and between Auto/Mate and other market participants. The complaint also alleged that Auto/Mate was likely to become a stronger competitive threat in the future, so that existing, current competition between the parties understates the most likely anticompetitive effects of this transaction. Although smaller than CDK and the second largest vendor Reynolds & Reynolds, Auto/Mate has been growing its business through lower prices, flexible contract terms, free software upgrades and training, high quality customer service, and modest fees to integrate third-party applications.

In addition to the complaint, the FTC authorized staff to seek a temporary restraining order and a preliminary injunction to prevent the merger, and to maintain the status quo pending the administrative proceeding. However, CDK and Auto/Mate have abandoned the merger.

"Today’s announcement from CDK and Auto/Mate that they have decided to abandon their proposed merger is good news for new car dealers across the United States," said Bruce Hoffman, Acting Director of the FTC Bureau of Competition. "Dealerships will continue to benefit from the disruptive and innovative efforts of Auto/Mate, resulting in improvements to DMS offerings across the industry. Despite Auto/Mate’s relatively small market share, it was winning a significant share of opportunities from CDK—a larger share than Auto/Mate’s overall market share might have suggested, showing that Auto/Mate was a strong competitor to CDK. Moreover, the evidence indicated that Auto/Mate was also a threat to other incumbent DMS providers, and, importantly, was poised to become an even more effective competitor in the near future. The Commission’s action shows that it will block a proposed merger if a large, established firm seeks to eliminate competition from a small but significant and developing competitor that is delivering substantial competitive benefits in innovation, price, and quality."

Companies: CDK Global, Inc.; Auto/Mate, Inc.

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