We have all experienced buyer’s remorse, whether on a home or vehicle purchase, getting caught up in an auction or an impulse buy. However, we rarely use “buyer’s remorse” to refer to a missed opportunity.
In my line of work, buyer’s remorse is a regular occurrence.
Our company averages more than 50 dealership sales annually, with 2021 marking a record-breaking year at 72 sales transactions. After we announce a sale, dealers often reply with comments like, “This would have been a great fit for us,” or “I should have pulled the trigger on that one.”
Every business for sale has only one purchaser. I would like to help you become the purchaser and not the one regretting a missed opportunity.
Phase 1: Preparation
For a first-time buyer, a dealership purchase can be a life-changing event. As an addition to your portfolio, an acquisition may yield a lucrative return on investment. Either way, the stakes are high and preparation is key.
Step Zero
Benjamin Franklin said, “By failing to prepare, you are preparing to fail.” Before you take any action, step back and assess your goals. Think about the process as Step Zero. What is your motivation for a purchase? Is your intent a want or a need? How would an acquisition further your business goals or enhance your organization? Are you prepared to assume the financial risk and exposure? How involved do you intend to be post-closing?
If you do not clearly define your reason for a purchase or your buying criteria, how can you identify the right acquisition opportunity?
Advisory Team
We advise our clients to surround themselves with a trusted advisory team that includes an attorney, accountant, financial planner and dealership broker. Ideally, these advisors have transaction experience specific to the RV or automotive industries. Their role is to ensure that your best interests are protected, provide for a smooth process, help avoid pitfalls, assist with due diligence and level the playing field—because you expect the selling party to be properly represented as well.
Financing
Establishing a banking relationship in advance is prudent to understanding an acquisition’s financing parameters: the value
of goodwill, debt vs. equity ratio, required down payment, working capital requirement and collateral, for example.
Human Capital
Larger companies have growing human capital talent pools. Employees who have exceeded their positions might require promotions to ensure continued job satisfaction. The scenario is often a growth driver, as an acquisition may create new promotion opportunities.
If you are looking to expand, especially outside your immediate area, ensure you have the necessary talent ready to assume those roles to secure your investment.
Acquiring a dealership is a full-time job. The buy-sell process typically takes more than four months. Larger companies have directors of corporate development, corporate departmental managers and even transition experts specializing in transitioning the business and training employees.
Is your organization positioned for continued and controlled growth?
Phase 2: Negotiations
So, you decided to expand, engaged your advisory team and identified a potential acquisition. The next step is to negotiate an offer to purchase.
Numbers Speak Louder than Words
Understand the numbers intimately and ask questions as needed. Compare the dealership’s performance to industry averages and key performance indicators.
Sellers commonly adjust their earnings to account for discretionary expenses, major one-time expenses, owners’ perks and more. However, buyers should consider adjustments to market wages and employee benefits, additional advertising expenses, debt service and more.
Two items that must be adjusted in valuation calculations are the owner’s salary, benefits and bonuses to reflect your company- rate general manager, and store rent to show your preferred capitalization rate and desired return on assets.
If the company balance sheet includes personal assets that are excluded from the sale, those items should be identified and discussed upfront, as they can cause the deal to stall during due diligence.
Too often, buyers focus only on the goodwill price and overlook other deal components which may be critically important to a seller. Factors may include:
- Which employees you intend to keep or terminate.
- How you value the FF&E (furniture, fixtures and equipment), parts obsolescence and used vehicle inventory.
- How you manage long-term contracts.
- Whether you require seller financing.
- What noncompete restrictions will be required.
- How much cash is held in escrow.
- How you manage the real estate.
Valuations are an art, not a science. Every buyer will value the same opportunity differently based on the forecasts in their proforma financial statements and their unique reasons for acquiring a particular dealership.
The Big Picture
Overpaying for a good business is better than underpaying for a bad one. Keep your eyes on the prize and refer to Step Zero (your motivation and buying criteria).
As you contemplate your offer, ask yourself the following: Do you want to be the one who owns the dealership or the one who talks about the time you almost owned it?
Do not concentrate solely on the dealership’s historical performance. Prepare a proforma financial statement to project your earnings and evaluate your return on investment. If you cannot develop a plan to improve, or at least maintain, the seller’s performance, you should not be buying that dealership.
The “buy low, sell high” strategy best applies if you intend to sell an asset shortly after the purchase. However, if you plan to own the dealership long term, then slightly “overpaying” should not impact your long-term goals.
The Art of the Deal
Successfully negotiating a deal goes well beyond the valuation.
The RV industry is heavily comprised of multigenerational families who have owned and operated their businesses for decades. They have an emotional attachment. The selling dealer’s process can be highly sensitive. The business often represents most of their net worth, and even defines them as a person.
It may sound trivial, but be humble, show respect and connect with the seller on a personal level. Understand and relate to their values and philosophies. People enjoy doing business with those they like.
Be sensitive to the seller’s needs and emotions, but do not absorb their problems.
Listen to the seller’s sale motivations. More important, listen to their concerns. Listening will allow you to neutralize any reluctance the seller might have.
We had a client who spent every Sunday at his dealership reading the newspaper and watching football. His wife shared with us that her husband was reluctant to finalize the deal because he would no longer have a place to spend his Sunday mornings. We overcame the situation by persuading the buyer to keep the husband’s office intact and allow him to use the back entrance on Sundays.
You will most likely be expected to sign and honor a nondisclosure agreement. For your sake as well, maintain confidentiality. Rumors and breaches can result in employee loss, seller negotiations’ termination or competing dealers’ and manufacturers’ interference.
Always expect to compromise. Offer and expect commitment. Negotiate in good faith and aim for a win-win. If negotiations do fail, leave the door open on good terms, as circumstances may change in the future.
Phase 3: Due Diligence
We often hear about deals falling apart. In theory, all that came together was basic price and terms. The due diligence stage most likely presented obstacles that could not be overcome.
Customary due diligence includes financial, assets, real estate, employees, customers, intellectual property, technology, legal and more. Every buyer should have a comprehensive list of due diligence items required for investigation.
During your in-person visit with the selling dealer, remember to touch on the following.
Ask Questions Only the Dealer May Know
- What is the motivation for a sale?
- Which key employees intend to stay?
- What are the opportunities for improvement?
- How is the competition in the market area?
- Are there any prior or pending legal issues?
Company Culture
Culture starts at the top with the owners. It is passed on to upper management. Being woven into the organization’s fabric, these values are evident in the company’s processes, quality of service and reputation. With the accessibility
of online customer reviews, consumers learn about a company’s reputation before they enter the business. For many dealerships, culture is an integral part of their business success.
Consider how your company’s core values match those of the acquired dealership’s. If company culture requires a change, how will the market and the employees adapt and react? Further, if you are acquiring a dealership with poor reviews, will the deal negatively affect your entire organization’s reputation?
Management
Upper management employees will be crucial in executing your vision, implementing your processes, and constantly and consistently exemplifying your core values. They also will be responsible for developing the human capital within your organization and managing your growth. Ensure your management styles match, or at least that any key personnel are coachable, especially if the dealership is a remote acquisition relying heavily on existing management.
Trust Your Instincts
Do not ignore red flags. Acknowledge and assess red flags to determine if they can be neutralized.
Sometimes the best deals you do are the ones you walk away from.
Sleep on It
Once you decide to acquire a specific dealership, sleep on it. Picture yourself owning the business. If you intend to be an owner-operator, visualize your daily commute, working at the dealership to stabilize it and increase performance, being away from your family or possibly relocating your family.
Reassess how the acquisition may accomplish your personal and business goals.
Always Be Prepared
Doing a deal when both buyer and seller are motivated is difficult. It is practically impossible when either is reluctant.
When you aim for a win-win, negotiate in good faith and be ready to compromise. At the end of the process, you will likely find yourself sitting behind the former seller’s desk.
Jesse Stopnitzky is a partner and the director of the RV Division for Performance Brokerage Services, North America’s highest volume dealership brokerage firm advising on buy-sell activity for automotive and RV dealerships. Family-owned, the company benefits from more than 25 years of experience, 700 past dealerships sold and a 90% closing rate. Stopnitzky is an RVDA associate member.
