Preparing For The Buy/Sell Process
Performing a self-evaluation can help avoid headaches.
By Denise L. Rondini, Executive Editor
Although the market for buying and selling businesses is improving, Stephen Dietrich of the law firm Greenberg, Traurig, LLP, says there still is a disconnect between buyers and sellers, but the gap is getting smaller. In a webinar sponsored by Compli, Dietrich said that sellers are hoping buyers will look at more recent performance and make purchase decisions on the upside potential of the business. And buyers are looking more deeply into deals as their lenders are asking for more assurances.
If you are thinking of selling your dealership, conducting a dealership self-evaluation can save you time, energy and money, according to Drew Testerman of Greenberg, Traurig. “It will allow you understand the true value of your dealership and help identify problem areas in advance of the negotiations and can expedite the due diligence process.”
To begin, buyers will want examine key areas of their businesses including: the organizational structure, tax and accounting issues, estate planning/succession goals, lending sources and collateral, strategic goals, existing framework agreements and vendor relationships.
Buyers need to determine if the new acquisition will be integrated into their existing structure or if it will be operated as a separate entity.
Attorney Sarah Niemiec Seedig of Greenberg, Traurig, says sellers need to have a strategy as well. Why are you selling? A strategy can guide the dealer throughout the entire process and he can return to it when faced with decisions or conflicts.
“They also need to address intra-owner conflicts prior to engaging in the sales process,” Niemiec Seedig says. She suggests that using advisors can help work out owner conflicts.
At the operational level, Niemiec Seedig says dealers need to review the following: employees, sales cycles and cash flow, third-party vendors, manufacturer relationships and unique issues with parts inventory. They also need to determine if they are selling one location or multiple locations. “Dealers need to make sure they understand vendor agreements including any termination fees,” she says.
Dietrich says it is also important to note any special customer programs, such as lifetime oil changes as these can creates transition issues.
Obviously before selling dealers need to conduct a thorough financial analysis and this information usually is the easiest to generate. This should include a review of the balance sheet/cash flows, income statements, accounts receivable, accounts payable, aging equipment and fixed assets, Dietrich says. “But it also should include potential add backs, management compensation, unusual assets, rent and capital expenditures.”
Potential buyers also are going to want to know about the dealership’s warranty experience and banking relationships.
Another big area of consideration is real estate. “Dealers have to decide if they will sell the real estate along with the dealerships assets or retain it and lease space to the buyer,” Testerman says. Dealers should get a valuation of their real estate holdings and also should have a condition assessment performed. This can help identify any issues and allow the selling dealer time to fix them.
Additionally, the dealer may want to consider getting a Phase One Environmental Assessment. Depending on a variety of factors this generally costs between $2,000 and $4,000 and is a non-intrusive inspection.
The inspector walks the property and makes notes of things the dealer should consider looking into further. It also includes a record search function that reviews title records, county records and state environmental records. This typically includes a search of adjacent property and anything within a one mile radius of the dealership.
If the dealer currently is leasing his space he needs to review the lease assignment provision to determine if he freely can assign the lease to someone else. Many leases agreements have provisions that give the landlord consent rights.
Your self-evaluation also needs to include a look at issues between you and your manufacturers. “It is important to understand your rights and obligations under the dealership agreement,” Niemiec Seedig says. Follow all time lines for submitting buy/sell packages and determine if the manufacturer has the right of first refusal.
Having performed a self-evaluation prior to selling your dealership can give you some control over the process and will help eliminate surprises.
“The more prepared you are to answers the buyer’s questions the smoother things will go and the better the offer is likely to be,”