By Farid Ahmad, President, Dealer Solutions Canada
The Canadian market is following the US with respect to the rate of consolidation. Many dealer groups are hungry to grow and acquire stores often paying heavily for strategic brands or locations.
This year has seen an unprecedented amount of buy / sell transactions, Dealer Solutions Canada has seen 100% growth in 2014 vs. the previous year. We have completed more Buy & Sell transactions in Canada in 2013 than any other firm.
Over the past 3 years, we have analyzed and assessed over 50 dealerships in order to assist dealers in selling their store, understand the value of their business or to contend with issues such as inheritance, partnership conflict resolution, factory succession and estate planning.
I am sure you, or one of your fellow dealers, have a story of dashed hopes in a buy sell deal. You get excited about the business prospects, you invest a lot of time and money, but unfortunately the deal doesn’t come together. Why and how does this happen? There are a number of reasons a deal can fall apart. Most dealers think the most obvious answer is Money. But we have discovered through our hundreds of interactions with dealers that the most common denominator is “A LACK OF GOOD COMMUNICATION”.
Buying or selling a dealership is one of the most emotional transactions that affect both the buyer and the seller. People’s fears and aspirations can and will naturally take over at certain points throughout this potentially long and stressful process. That can lead to a breakdown in communication between both parties. This situation can very easily be the beginning of the end for that deal. These recommendations can improve those odds into your favor:
- Really understand the numbers. If you are selling, bring in your external accounting firm to guide and help you understand all your options. As a buyer, investigate what dealerships are selling for in your region or province. You can find out about most of them from our reputable and experienced team or through your network of automotive contacts.
- Be realistic. Both the buyer and seller look at a transaction from two different perspectives. The buyer wants to ensure they only pay market value or ideally under market value. The seller wants to maximize their return and may factor into the purchase price such intangible items as the blood, sweat and tears they have given to their business over the years.
- Be prepared. To get top dollar for your store you need to ensure your dealership stands out. This includes the look and cleanliness of the dealership. Buyers need to feel comfortable that you know your numbers and everything about your dealership. Anything less than this and buyers become suspicious and think you are hiding details. Also, be sure you have consulted or considered any family members in your decision to sell.
- Use a Middle Man! We cannot stress enough the importance of this point! Self-promotion aside, there is a reason that 99% of real estate and business transactions happen through an agent. Let Dealer Solutions Canada be your Middle Man! A professional team of experienced middle men like at DSC is “worth their weight in gold”. At Dealer Solutions Canada we get paid on our results and we are only paid if the deal closes. We are the first ones to brag about how much value we bring to a transaction, get the real insight. Don’t ask Dealer Solutions Canada, ask their past clients.
- Use Automotive Professionals. To save you money, time and unnecessary hassle, use professionals that understand the automotive industry and have clients in the retail automotive business. These professionals include brokers, lawyers, accountants and appraisers. As an example; we closed on a dealership recently for which the purchaser did not use a lawyer familiar with retail auto dealerships and it resulted in a legal bill of nearly $70,000 for the purchaser to close on that deal. Our business is very unique and it can be difficult to understand all the different facets and departments that are involved so it really can pay to find the right professionals.
- Due Diligence. Normally, this is the period when deals stick together or fall apart. Once you have decided to sell, begin Due Diligence on your own business. Make sure you have all the answers to the questions you will be asked by the buyer. Some of the more challenging deals we have held together were the ones for which the seller did not have their information easily accessible or in some cases was completely missing.
- The “Factory”. As in the United States, the Canadian automotive manufacturers have control over how or to whom you can sell your dealership to. There is no point entering into a buy/sell, an LOI or Definitive Agreement if you have not taken steps to ensure the purchaser will get approved. As unfortunate as this may be, we have found out the hard way that the manufacturer does require their involvement. To be safe (and I am generalizing here) if you have a major point dealership in a major market it is VERY unlikely that someone without hands on or previous ownership experience will get approved.
- Your staff. Once you have decided to sell your business, do not allow the purchaser or any of their representatives to meet, interview or discuss the transaction with your staff until you are satisfied that the buyer has signed off on Due Diligence; the Definitive Agreement is signed; and the factory has, in writing, approved the buyer.
- Potential delays. The average transaction time to close a deal from beginning to end can range from 3 to 6 months. Throughout this period of time you will likely have more than one sleepless night. This can increase if a) your LOI was not tight enough on all the different time lines before you signed it or b) the purchaser is intentionally slowing down the process for some unknown reasons. If you want a good clean safe transaction, pay attention to timelines.
- Closing. You are almost there. Today is the day that can change your life. Sounds good, eh! In reality, closing days can become very frustrating and long so you need to be prepared. There are several important details that need to happen such as a parts inventory, a valuation for used cars and transfer of unsold new vehicles from your floor plan to the purchasers. DSC can help you be prepared for what needs to get done, plus we know some great deep breathing exercises!
Farid Ahmad is President of Dealers Solutions Canada, a buy sell advisory firm headquartered in Toronto, Canada. He can be reached at 1 855 928-SELL (7355).