Why the Wrong Decisions Can Cost You Millions

Why the Wrong Decisions Can Cost You Millions

One year ago, Eric Levitt and I made the move from running our own dealership operations to venturing into the world of automotive mergers and acquisitions.

Entering the M&A space was an unknown territory for us and knew we were stepping into uncharted waters, unsure of what to expect.

Now, having completed my first 12 months in this new role, I would like to share my initial thoughts and observations.

To begin with, the automotive M&A space does not have the best reputation. Why would it? It is a continuation of the automotive industry, one that is notoriously negative filled with larger-than-life personalities and egos. Many of these individuals are more concerned about the “sale” than the actual well-being of the dealer, their businesses, families, and futures. I’m completely blown away by the lack of transparency or candidness from some of our competitors, feeding the dealer network with unrealistic valuations and expectations for goodwill multiples. A clear indication of their true motives.

Can you honestly tell me the value of the dealership just by looking at a simple financial statement and walking around the property?

Unfortunately, this is happening in the market. It is disheartening to witness the dissemination of false hope to dealers who are provided misleading valuations of their assets. Some valuations are determined solely by a cursory review of the financial statement and a brief tour of the property. This approach lacks thoroughness and fails to account for the complexities of a dealer’s financial situation.

During my time at the NADA Dealer Academy, we were taught not to be dealers who merely glanced at the “Top Left, Bottom Right” figures on a balance sheet. Dealers deserve better treatment and a more comprehensive evaluation of their businesses.

Dealers have invested countless years, substantial funds, and considerable effort into building successful enterprises. They have upgraded their facilities, hired exceptional personnel, and adopted the latest technology to set themselves apart from the competition. So, why are dealers so quick to accept a “free valuation” and base the significance of something they have worked so hard on, solely on a haphazard estimate? It’s truly mind boggling.

Valuations of businesses need to be taken seriously. Yes, while it will require some investment to have a proper evaluation conducted, it is a worthwhile endeavor. A well-executed assessment provides dealers with an accurate understanding of the true worth of their businesses, the appropriate goodwill multiples, the actual walk-away numbers, and a comprehensive perspective on the overall value. After investing so much time and energy, it would be a disservice to stop short of maximizing the full potential of profitability.

In recent years, goodwill multiples have been extensively published, and while dealers may have an idea of what they could potentially get, they often fail to grasp the full picture and the actual amount they will walk away with at the end of the deal. This crucial aspect is frequently overlooked, and I strongly urge dealers to ensure they have a thorough understanding of their FULL VALUE.

It is undeniable that larger automotive groups have been actively pursuing acquisitions, consistently expanding their portfolios. These groups employ dedicated teams solely focused on seeking out deals, developing proformas, analyzing financial statements, and scrutinizing the prospectuses sent by M&A firms like ours.

However, what about the independent dealers who are seeking to grow or sell? Although they may own one, two, or three+ dealerships, they aren’t necessarily the resident experts on automotive buy/sell transactions and are looking for advice. Collaborating with these dealers looking to expand their portfolios or transition to the next phase of their lives has been truly enjoyable. I have found these interactions to be genuine, down-to-earth, and mutually beneficial. We share common goals and aspirations while also learning from one another.

I have enjoyed working with these dealers who want to grow their portfolios or sell and move onto the next stage in life. My interactions have been real. We share something in common while at the same time, we’re learning from one another.

This past year, I have developed a strong relationship with these dealers and genuinely care about their situations. I strive to provide them with the best possible advice and support, understanding the weight of their trust in me during these critical moments. It has become more than just a sale to me. These are individuals who have entrusted me with their future, and I am dedicated to ensuring the best possible outcome for all parties involved.

Admittedly, I have become emotionally invested in these deals. It might be considered a fault of mine, but I am motivated by a sincere desire to see dealers and their families achieve the most favorable results. This year has been a transformative experience, both personally and professionally.

Eric and I have been told we are refreshing in an industry that has struggled with its reputation. We bring a new sense of energy, transparency, and integrity into the world of mergers and acquisitions.

I invite you to give us the opportunity to earn your business. At DSMA, we are an all-encompassing firm, equipped with a team of professionals dedicated to supporting our dealers throughout the entire process. Our in-house CPA’s will conduct a thorough valuation, ensuring an accurate understanding of the business’s worth.

DSMA – Valuations, Mergers & Acquisitions is not just another M&A firm. We are committed to being the Real Deal with Real People who care about your success. We prioritize precision, professionalism, and delivering results that exceed expectations. With us, you can trust your dealership’s future is in capable hands. Give us the opportunity to show you what sets us apart while achieving your goals.

DSMA is the Real Deal with Real People.

Eric and I would appreciate the opportunity to talk through your situation, offer any advice, and set up a valuation consultation.

You can reach us at:
Katie.naughton@dsma.com or 647-282-7842 (CAD) / 702-764-8810 (USA)
Eric.levitt@dsma.com or 416-801-0463 (CAD) / 702-764-8385

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