By Kendall Rawls
The automotive retail industry is still hot with buy/sell deals. Even though the economy is starting to show some signs of slowing, opportunities continue to avail themselves to dealers looking to either exit or grow. With this comes a lot of talk about ensuring the proper financial due diligence has been done in order to determine the proper value, but also the fiscal health of the transaction.
It is true that engaging in the financial due diligence process is critical to the buy/sell transaction. However, we believe it is just as, if not more, important to conduct cultural due diligence. After all, the deal needs to be fiscally sound, but in order for you to experience a smooth transition and ensure long-term success and sustainability, you have to look internally at the people, relationships, leadership bench and all those sticky areas tied to human capital. To bring this scenario to life, let’s walk through a real-life transaction in which things did not go as expected for the seller, or the buyer.
The story starts with a dealer looking for the “what’s next” in regard to the legacy he had built. He had a 15+ year successful dealership, a team of dedicated long-term employees and a history of long-standing returning customers. Life happened and unfortunately he and his wife divorced, forcing him to sell the dealership.
He was courted by a couple of larger groups who wanted to move into his area. He was sure to get all of his financial items in order. He even engaged in sell-side financial due diligence to identify any potential red-flags and/or areas that could keep a deal from being successful. He thought he had done all of his homework.
Fast forward a year, however, and although the dealer was no longer involved in the dealership, he felt the lasting affects of his decision to sell. Going through the sales process, he was not solely concerned with the amount of money he was getting on the deal, although it did of course have a big impact. What concerned him more was protecting the legacy he had built, which meant protecting his employees and his customers after he was gone.
Unfortunately, he missed one big step, which was doing some due diligence on the culture of the organization purchasing his store. Likewise, the buyer had a tough time with the transition with the loss of people and customers, and with it, a tarnished reputation in the community.
All of this could have been avoided if the parties had agreed to include a cultural due diligence assessment as part of the deal. Simply, compare cultures, mission, and goals and determine if they are in alignment as much as the financials are. As we all know, the people and the customers are what keep the dealerships growing, and if we lose good talent and the customers do not come back, it can be fatal. Here are three steps to ensure you protect your legacy when selling, or keep yourself from stepping in it if you are buying:
- Before you even consider a transaction, know where you stand in the areas of human capital. If as the buyer you are not worried, know where the seller stands about their people. As the seller, if your people (employees, family and customers) are important, be sure to make them a consideration in the courting and research stages.
- Before you discuss financials and values, ask questions regarding the culture of the organization. This can be done in the “courting” phase as it does not require any non-disclosure agreements. Ask questions to determine if the organization aligns in mission, values, people management and development and of course type and importance of the customer relationship.
- Before you sign anything, make sure you have terms in writing as it relates to the outcome, as much as you are able, of the combined culture of the organization. For example, a communications plan to employees and customers, what to expect during the transition and importantly, after.
When engaging in a buy/sell transaction it is easy to get caught up in the financial aspects of the deal. However, to protect the future of the organization and the core components of the people, customers and relationships, engaging in a cultural due diligence assessment can make the transaction smoother.
Kendall Rawls knows and understands the challenges that impact the success of an entrepreneur-owned business. Her unique perspective comes not only from her educational background but, more importantly, from her experience as a second-generation family member employee of The Rawls Group – Business Succession Planners. For more information, visit www.rawlsgroup.com or email info@rawlsgroup.com.
