By Alysha Webb, Editor and Publisher
What multiple is a particular brand’s dealership selling for? That is the question that the numerous reports on dealership buy sell attempt to answer. But that question is not that relevant in many of the smaller deals that are getting done, said Ronald Coleman, an attorney and shareholder at Davies Pearson P.C.
That is likely a fairly large number of deals. More than 90 percent of the buy sell deals it works on are under $25 million, according to the Presidio Group.
“Multiples aren’t critical,” said Coleman, who has more than 35 years experience doing buy sell transactions.
He defines “small” as deals with blue sky values between $500,000 and $3 million. Coleman uses blue sky instead of earnings or total value to define the size because a potential buyer generally isn’t looking at earnings in these small deals, he said.
Buyers in the small deals he works on are more concerned with how much they will need to spend to make the store profitable or to improve sales, and how long it will take to earn back the initial investment, said Coleman. Also, how that store’s operations, and thus profitability, can be improved. “They look at what they can do with that store,” said Coleman.
Of course that’s true for most deals. But one special characteristic of the small deals is that the people involved often know each other before they start negotiating. Indeed, that has been the case in several deals profiled in Automotive Buy Sell Report. “It usually makes for easier deals,” said Coleman.
However, don’t abandon some basic rules just because you are familiar with the other party, cautioned Coleman. Buyers still need to do due diligence, for example. But there generally isn’t an army of accountants and auditors involved.
Often the small deals don’t use a broker. While this may save money, the seller could also be leaving money on the table because “they think they know the value,” said Coleman. So using a broker may pay for itself. It is advisable to have at least three qualified buyers, he added.
Do your homework and tidy up
For buyers, “do your homework, get somebody else’s input” on the store’s value. That includes asking the manufacturer what the planning volume is for the store. Even if you disagree, it gives you an idea of what the factory thinks the store is worth.
For sellers, Coleman’s advice is common sense but sometimes not adhered to, he said. If the store is just barely profitable, try to boost sales and profitability before putting it on the block.
Make sure the store looks good. “Clean it up,” he said. “If the store is looking shoddy, a little paint goes a long way. It sounds stupid, but it really isn’t.”
There is a caveat to that advice, however. If the store needs a factory upgrade, a cost the buyer would need to incur, “don’t screw around with the paint,” said Coleman. That will be the least of the buyer’s concerns as far as the appearance of the store is concerned.
Ronald L. Coleman is a shareholder and attorney at Davies Pearson P.C. in Tacoma, Washington. He can be reached at email@example.com or 253-620-1500.