By George M. Taylor, III
One of the questions that arises when a dealer is considering the purchase or sale of a dealership is “Who is going to be on the team?” It is a logical question and comes up frequently before a target dealership or a potential buyer is even considered.
The team consists of the usual advisors, lawyers and accountants, but can also include other specialists whose talents are not as fully understood as the professionals with whom the dealer interacts on a frequent basis. In this article we will look at dealership brokers.
It is not unusual for a dealer to assume at the outset that he or she can sell or purchase a dealership on his or her own without help from “sales talent” such as a dealership broker. After all, no dealer considers themselves short in negotiating skill – the heart of buying and selling. Although a good broker is a good salesman, the best brokers are much more than that.
Some brokers offer an in-depth assessment of your dealership that can include an evaluation of the dealership culture, market conditions, manufacturer requirement, financials, and more to arrive at a valuation. Others offer much less.
Therefore, you should carefully consider whether to engage a broker in your next dealership sale or purchase and, if you do engage one, what qualities to look for in that person or firm.
In my long career of buying and selling dealerships, I have handled many transactions where brokers were not involved and many where they were. It is fair to say that there are some transactions in which a broker serves little purpose, and given the fact that they are not cheap, a wise dealer might avoid unnecessary expenditure.
However, in my honest opinion, the range of deals in which a broker adds little value is fairly narrow. Those include purchasing from or selling to the dealer next door whom you have known for thirty years and who is offering a price that you are confident is as good as it gets. I have never seen a broker detract from the transaction process. In a number of cases, I have seen the role of the broker being fairly neutral. However, in most cases the broker has been such an integral part of the process that it is likely that the transaction would never have closed without his or her help.
The services performed by a dealership broker are many. The value of a typical broker depends on two sets of factors: technical services rendered and intangible skills brought to bear on the transaction. The simplest form of broker is the one that introduces the purchaser and the seller, and then disappears from the transaction for the remainder of the pre-closing period. No one sees or hears from him, but some how he miraculously knows the precise time and place of closing, and shows up to grab his check. While this seems little work, if this broker is the one person who connects these two parties, his services might well have been worthwhile.
A more engaged broker may be extensively involved in identifying a dealership target potentially making dozens of cold calls in territories sought out by the buyer. Brokers are very adept at this work. Any dealer who thinks he can make a few calls and find a dealership to buy is misguided.
On the sell side, most brokers will assist in putting together financials and other necessary documents for the sales process. There are particularly well-connected brokers whose judgment is valued by public companies, thereby enhancing their ability to connect sellers to those entities.
By virtue of seeing a constant stream of dealership transactions, brokers have a good feel for blue-sky prices and are capable of moving deals forward by managing a “deal-killing” lawyer or accountant.
In the negotiating process, a good broker will ensure the acquisition document falls into place and will insert himself at critical moments where a particular clause or provision threatens to derail the process. The experienced broker works in concert with accountants and lawyers to provide guidance regarding what you should be seeking in the transaction and what is of lesser importance.
For example, giving the seller a demo to drive for a few years is acceptable, while assuming a “tires for life” program is not. Unlike lawyers, brokers talk directly to the opposing side without filtering through legal counsel. The best brokers will develop a relationship of trust with both sides of the transaction, providing a critical communications channel if the deal stumbles along the way. Finally, brokers furnish a constant drumbeat of “When are we going to close?” that keeps everyone focused on moving the transaction forward.
As with other professional consultants where relationships are critical, the selection of a broker is a personal process. While credentials and experience are certainly important, a face-to-face meeting is essential to see how the relationship fits. Look for good inter-personal skills, the style of communication and the level of aggressiveness of the broker to see how they fit with your view of how matters should be handled.
So, back to the question of do you need a broker for your next dealership transaction? If you have 20 or more deals under your belt, you likely know the answer. If you are newer to process, the answer is that in most transactions, the right broker will pay for himself or herself in ways that go well beyond the cost of fees.
Brokers typically make a transaction more likely to close, and to close on terms which are beneficial to you. Finally, a professional broker will add a perspective to your acquisition that cannot come from any other source. So, although you are welcome to try to save the expense and avoid the broker, if your deal falls through, will you wonder if just the right broker could have kept it on track?
George M. Taylor is the chair of Burr & Forman’s Corporate Section, which consists of the Corporate and Tax practice group, the Banking and Real Estate practice group and the Creditors’ Rights and Bankruptcy practice group, encompassing lawyers from the entire five-state footprint of the firm. He can be reached at (205) 458-5254 or gtaylor@burr.com.
