The parties in automotive M&A transactions typically have similar goals every time – the buyer wants to acquire a business that will perform exceptionally well, while the seller wants to maximize the amount they profit from the sale.
Once that you get past these most basic of objectives, however, every deal is different and nothing can be assumed. Due to the specific factors inherent in different locations and individual personalities, each automotive business is unique and runs in its own way.
To think that a deal will go the exact same way as a prior one can lead to severe mistakes that can derail that transaction. Each buy-sell deal has many moving parts and requires attention to every detail, whether large or small, before the finish line is successfully crossed. Some of the most common flawed assumptions that can arise in automotive M&A are:
Thinking that a seller will agree to the transaction, no questions asked, if they are given a generous offer
Granted, there are some sellers that only care about the money and maximizing their profits. But to most dealer principals, an automotive dealership is a lot more than a building and its vehicle inventory. To many sellers who have nurtured and grown their stores over decades, their dealerships are their lives’ achievements, representing years and years of hard work.
Automotive retailing at this level is usually closely identified with the owner’s name, sometimes going back several generations within the same family. The seller’s emotional investment can often be just as large a factor as the financial investment in the operation of the business. This means that the buyer’s plans for the future of the dealership can work for or against the ultimate success of the deal.
Is the buyer a public conglomerate that plans to absorb yet another dealership into its brand while effacing the features that appealed to local buyers? Will the dealer’s name be wiped from the building to make way for the mega-dealer’s logo? Will the staff be laid off and replaced by employees of the buyer who have been trained at other rooftops? Will the building be razed to make way for a new facility? Is the seller given no choice but to take the money and run? This kind of dismantling of a dealer’s life work will not sit well with prospective sellers who now see an abrupt end to their legacies.
On the other hand, there are buyers that see a dealership as a stand-alone investment that is operating just fine as it is. This type of buyer will focus on management quality and cash flow, so that the business can service its debt after the sale. The management will usually be retained and given a minority stake, so that they have a financial incentive to reach the buyer’s goals. This kind of buyer usually has an exit strategy to take their profits after a prescribed time period. For the seller who cares about the future of the business that he or she created, this can be a much better option.
Believing that the business will run exactly the same under new management if all the staff are retained
There are many good reasons for keeping the dealership’s staff together and continuing to have them work as a group after a change of ownership happens. But there are no guarantees here, because the top-level leadership is definitely going to change. Here are three keywords for guidance in this matter:
Communication
Once ownership transfers, it will be the management and senior staff who set the tone for the continued ongoing success of the store’s operations. For these key people to stay and commit to the new owner, they need to understand that they are valued and have an important place in the business during its next chapter. The new owner must communicate this clearly and repeatedly.
Compensation
The initial welcome to the new regime will be reinforced by the staff’s levels of compensation from the new owner. Will this be an improvement over what they had been making previously? The new owner needs to value all of the institutional knowledge that these employees will continue to bring to the table each day. It is a key to the new owner’s continued success, so it needs to be recognized and rewarded. The cost of starting from scratch with new or transplanted staff (unless the previous operation had serious operational problems) is an obstacle that a new owner may want to avoid at this point in time.
Culture
The differences in the quality of the leadership and work culture, both before and after the sale, can spell the difference between a smooth succession and a potential train wreck! If the seller has built a dealership culture based on solid processes and exceptional customer service in both sales and service departments, this should make for a smooth transition when the new owner steps in – as long as the buyer’s culture is at a comparably high level.
When there is a mismatch between cultures, problems lie ahead. A poor or even toxic culture in the seller’s store will definitely be noticed by a buyer that has a positive culture they wish to preserve. This can lead to a reduced offer price based on the buyer’s assessment that the staff adds little value to the business and may need to be replaced, in part or in full.
A buyer that does not enjoy a good company culture likely won’t consider this an issue, but your formerly loyal staff will notice the difference. They will likely vote with their feet and find better places of employment, not long after the transition.
The idea that the only difference between potential buyers is how much money they are willing to offer
A buyer usually has a clear vision for how a new acquisition will fit into his overall business strategy. These visions can vary quite a bit and can make the difference between a successful transaction and a failed one. The buyer’s vision will need to be acceptable to the seller if a deal is to be concluded successfully.
Let’s say that Buyer #1 offers a bit less but wants your rooftop to become the area’s leading auto retailer. There are plans for expansion, including adding franchises, upgrading its systems, improving customer service, and going all-in on electric vehicles. Your staff will be trained and incentivized to perform at an even higher level. There will be a massive investment made to achieve these goals. The future of your former point will be bright, with this dealership firmly in the vanguard!
Then there’s Buyer #2. This buyer offers you a higher price for your store but intends to make no changes to adapt it for the future. The staff will be on cruise control, with no incentives to excel. Many of them will leave for greener pastures. The dealership will limp along without any updates, until the growth and evolution of surrounding stores starts to eat into its market share. Without active intervention, the costs of operation will eventually surpass the dealership’s revenue, leading to its owner selling it for a fire-sale price.
As a seller, which scenario would you prefer to play out for your former dealership? There can be quite a difference in outcomes. This means that you can have a say in the potential future of your dealership!
DCG is a highly experienced firm that can make deals happen
DCG is a canny, supremely experienced full-service automotive M&A firm. Our staff has the savvy to cut through the noise and make advantageous deals happen for our clients. DCG Acquisitions delivers transactions that fit in with your goals and aspirations. We know what it takes to get both the buyer and the seller to “yes” in a spirit of mutual agreement.
Contact DCG Acquisitions to speak directly with an automotive M&A specialist and learn how our expertise can help you get the most out of your next dealership transaction.