Automatic Data Processing, Inc. ADP
ADP is a sleeping giant earning 19% Employer Services margins versus peers' 35-40% potential; electing Pershing's nominees catalyzes a transformation worth 100%+ in under four years.
Thesis
Pershing Square argues ADP is a 'lethargic, inefficient sleeping giant' whose Employer Services segment generates only ~19% operating margins versus Paychex's ~41% and Ultimate Software's 30-40% structural potential — a gap created by a decades-old COBOL-based AutoPay engine, a 'spaghetti' of legacy products, bloated sales and implementation headcount, a functional matrix structure with up to 11 management layers, and ~$300m of legacy IT spend that crowds out real R&D. The deck quantifies a 1,500-2,000bps margin opportunity in Employer Services by FY2022, lifting EPS from a status-quo $5.90 to $8.70 (~47%) and the share price to $221-$255 (101-132% total return) by June 2021. Pershing invokes Solera and CDK Global — both former ADP segments that expanded margins ~2,000bps within years of leaving ADP — as living proof. The ask is to elect Bill Ackman and two independent directors at the 2017 annual meeting.
SCQA
ADP is the $49bn industry leader in HR and payroll outsourcing, serving ~700,000 clients globally through three businesses — Employer Services, PEO, and Client Fund Float Income — with Employer Services driving roughly two-thirds of profit.
Employer Services earns only ~19% operating margins versus Paychex's ~41% and Ultimate's 30-40% potential, throttled by a COBOL-era payroll engine, bloated implementation headcount, siloed business units, and up to 11 management layers — while bookings disclosure and PEO pass-throughs mask the underperformance.
Elect Bill Ackman and two independent directors at the 2017 annual meeting, form a board transformation committee, redesign management incentives, accelerate product and back-end investment, cut legacy IT spend, and unwind the matrix corporate structure.
Lift Employer Services margins from ~19% to mid-to-high-30s%, FY2022 EPS from a status-quo $5.90 to $8.70 (+47%), and the share price from ~$110 to $221-$255 by June 2021 — a 101-132% total return.
The three reasons
- 1
Employer Services earns only ~19% operating margins versus Paychex's ~41% — a 1,900bps gap despite superior scale
- 2
ADP spin-offs Solera and CDK both expanded margins ~2,000bps within a few years of leaving ADP, proving the potential is real
- 3
Fixing ADP lifts FY2022 EPS from $5.90 to $8.70 (+47%) and the share price to $221-$255 — a 101-132% total return by June 2021
Primary demands
- Elect Pershing's three nominees (William Ackman, Veronica Hagen, V. Paul Unruh) to the ADP board
- Form a board committee to oversee an operational transformation plan
- Redesign management incentives and compensation to align with long-term value
- Accelerate investment in product and back-end technology; sunset legacy COBOL/PeopleSoft systems
- Reduce excess support headcount and unwind the siloed matrix corporate structure
- Restore sub-segment disclosure (revenue, retention, profitability by SMB/Mid-Market/Enterprise/International)
KPIs cited
Pattern membership
Precedents cited
- Solera (formerly ADP Claims Services Group) — margins expanded ~2,000bps within 5 years of 2006 sale
- CDK Global (formerly ADP Dealer Services) — Sachem Head activism, +1,300bps EBITDA margin transformation plan post-2014 spin
- Paychex margin trajectory (~20% in late 1990s → 32% by 2001 → 38% by 2013)
- Ultimate Software — Wall Street consensus on 30-40% structural margin potential at scale
Composition what's on the 168 slides
Slide gallery ·
Notes
Initial public deck of Pershing's 2017 ADP proxy contest, filed shortly after the Aug 7, 2017 Schedule 13D and ahead of the November annual meeting; classified as proxy_fight rather than initial_thesis because the contest is already underway and the deck is positioned as a solicitation. Stake percentage not disclosed within this document (references Schedule 13D for ownership detail) — left null per instructions. Heavy use of expert-network quotes from former ADP executives ('SVP of Technology', 'Former DVP Business Transformation', 'Former CEO and COO of [Redacted] ADP Country') as a rhetorical device. Strong use of CEO quote contradictions (Carlos Rodriguez 'best direct sales force in the world' juxtaposed against productivity decline). Solera/CDK case studies function as before-after proof points. Sum-of-parts present at the sub-segment margin level (SMB ~41%, Mid-Market 35-45%, Enterprise mid-20s-30%+, International mid-20s-30%) rather than asset-by-asset breakup valuation. Section dividers (I-IX plus A-F) take up many of the 168 pages, so the deck is not as dense as the page count suggests.