Separating Fact From Fiction
Lev Kowalsky June 22, 2022

FILTERING OUT THE NOISE SO YOU CAN FOCUS ON REALITY.

Whether you are thinking about buying or selling a dealership, chances are you’ve heard it is a hot market. Brokers are calling dealers, talking about record-breaking transactions, promising high multiples and getting listings. Just about every auto group is actively looking to acquire.

While valuations and transactions did increase substantially from 2020 to 2021, and there remains a lot of hype and activity in the buy/sell market, it is still very important to partner with a firm that can ground you in reality, rather than promising you the moon. Otherwise, deals just don’t close.

Yes, it is a good time to sell. But buyers aren’t throwing money away. Buyers want to pay a fair price for a good opportunity, and competition is not so fierce that they are bidding prices to outrageous levels.

I recently talked to a dealer who listed his business a year and a half ago. He doesn’t understand why it hasn’t sold. I had to be honest with him; he was promised a ridiculous number. Unfortunately, this is a common tactic in this business. Promise the dealer anything to get the listing, then temper expectation as time goes by.

The problem with this approach is that once a dealer is emotionally attached to a number, it is difficult to come down in price. And the longer a dealership is listed, the more buyers question why it hasn’t sold. This can end up hurting the dealer in the long run.

To prevent this from happening, partner with a firm that does its due diligence and takes the time to get to know you personally. Why is this important?

Due Diligence. It is irresponsible to quote a business valuation without digging into financial performance. I might be able to throw out generalities based on brand and location, but I can’t give a specific number until my accounting team reviews financials and KPIs. 

Potential buyers will go through this exercise to come up with a number they think your dealership is worth. If your broker hasn’t done their due diligence and the valuation is too high, the buyer will balk.

Due diligence also allows your broker to identify areas of opportunity for a potential buyer. For example, if a dealership has lower than average F&I profits, or low sales margins, these are potential areas of opportunity that can be applied to a goodwill multiple.

As someone who is looking to maximize your asset profitability, it is important for the broker to manage the narrative of the transaction. You don’t want potential buyers dictating the value of your business. A good broker will craft a narrative around why your dealership is worth the asking price, and that is simply not possible without doing due diligence.

Personal Goals. Not every sale is just about money. While dollars are important, many dealers have other concerns such as wanting to keep their staff employed, or wanting to keep their name on the business because legacy is important to them. Does your broker take the time to get to know you personally, and find out what’s important to you? Ideally you want a partner who will champion both your business and your goals to potential buyers. 

Currently there is a lot of hype about buy/sell activity in this industry. If you are planning to sell, make sure you filter out the noise, focus on reality, and find a partner who can not only come up with a realistic valuation for your business, but who can manage the narrative of its intrinsic value to buyers.