The 4 Most Common Pitfalls in an M&A Deal (And How to Avoid Them)

The process of achieving a successful dealership acquisition has many moving parts, and all parties have to work in sync to move those parts into place as smoothly and efficiently as possible. This is easier said than done and can only truly be learned through experience.

At DCG Acquisitions, we’ve closed hundreds of successful dealership transactions. Along the way we’ve learned a few things about what to strive for, and what to avoid, to achieve the most successful acquisition each time.

Here we’ve compiled four of the most important points to keep in mind while working towards a dealership sale that creates the greatest benefit for all parties involved.

While this list is not exhaustive (and acquisitions are complex), it covers several key aspects of a transaction and provides a guiding sense of how to avoid the common pitfalls of a deal.

1 – Due diligence must be completed, and it must be accurate

If you’re selling, it’s fine to make a strong rhetorical case for your dealership’s performance, but that case has to be backed up by numbers. It is the job of the buyer’s accountants to dig into the numbers, verify them, then draw their own conclusions. If it looks bad at that point, the deal could well be dead due to a lack of trust between buyer and seller, so any valuation from the seller must paint an honest picture of your business.

At DCG Acquisitions we do our own due diligence before we present it to any potential buyers. That way, we know that the numbers are solid and the level of performance claimed by the seller is real. Both buyer and seller can then proceed with confidence from that point.

2 – Value the human element, but keep emotions out of the deal

We never forget that our work is all about the people we are engaged with (in fact, that’s what makes dealership transactions so rewarding), but there can be times when emotions take over and threaten to unravel a deal. It’s understandable — we are often working with multigenerational family businesses that were started 40 to 50 years ago or more — and a deal can get very personal if you let it.

The best way to get things back on track is to take a step back and remember the first few days of the deal, when everyone was focused on the business-related reasons for making the acquisition happen.

The relationships and personal connections we make are very important, but if you can separate them from the business elements, you are much more likely to get the transaction done to everyone’s satisfaction.

3 – Environmental issues must be disclosed and solutions agreed upon

It happens more than you might think — some oil or other hazardous substance was spilled on the ground in the past, was neglected or ignored, and now has to be dealt with. It’s a problem for both the seller and the buyer.

Environmental problems can derail a deal if you don’t know how to handle them. We have seen this before and we know how to work it out. Some strategies include:

1. Fixing the problem before the sale and waiting to close
2. Escrowing the money to get the work done after the close
3. Turning the transaction into a short-term lease until the damage is repaired, then closing

4 – Differences in appraisals must be resolved

As mentioned, wide variations in business appraisals can cause hiccoughs in a deal. This typically happens when the seller provides a high, multi-million-dollar valuation, which typically leads to the buyer asking for a “second opinion” from a different appraiser. What usually happens is that the buyer’s appraisal and the seller’s appraisal are within 10% of each other. If that’s the case, they can simply split the difference and proceed with the rest of the deal.

But what happens when the two appraisals are too far apart to be resolved simply? If DCG Acquisitions is working on the deal, this is where we use our streamlined three-appraisal process. Here’s how it works:

1. If the buyer’s and seller’s appraisals are more than 10% apart, we have the two appraisers select and hire an independent third appraiser that they both approve of.
2. The unbiased third appraiser reviews the two existing appraisals and chooses the one that best represents the correct value of the property.
3. That appraisal becomes the accepted valuation as negotiations proceed.

This approach helps move negotiations forward, but it also promotes accuracy in each party’s valuation from the get-go.

Both parties in any dealership transaction must be cooperating partners who are willing to work together, for as long as it takes, to achieve a successful deal. Here at DCG Acquisitions, we have seen many deals begin to unravel as forward momentum is challenged, for reasons like the ones listed above. (There’s even a name for this: deal fatigue.) But our team knows how to keep both parties engaged and focused on the final outcome of a successful transaction.

We get involved and dig deep to resolve the issue or issues causing the stalemate. We are problem solvers, doing everything we can to get the deal back on track and keep it moving forward. We stay in touch with all of the players, which can include:

1. The seller
2. The buyer
3. Vehicle manufacturers (there can be several in a multi-rooftop deal)
4. The seller’s accountants
5. The buyer’s accountants
6. The seller’s attorneys
7. The buyer’s attorneys

At DCG Acquisitions, we bring passion and a high level of understanding. Our experienced and committed staff includes M&A attorneys, M&A accountants, previous OEM executives, and former dealership owners. The experts at DCG Acquisitions have been through this process hundreds of times, so we know what it takes to get both the buyer and the seller across the finish line with smiles on their faces. Making the transaction as easy as possible is a great way to end up feeling good about it.

At DCG Acquisitions, we like to say that the best way to prepare for an acquisition is to always operate as though there is a chance to sell your store. This means that the entire company is doing its best to wow the customers and create the greatest customer experience possible. This approach starts from the top down, but it must be embraced by everyone from the owner to the managers to the sales, service, and administrative staff.

We firmly believe that process equals results. If you have optimized your sales and service processes, then you are creating profitability, retaining your service customers, and getting great CSI scores. And if your sales efficiency is good and there’s room for growth, a buyer will definitely be able to see a path toward their own profitability.

The firm you hire to assist you with an acquisition or a sale must be able to manage all of the issues, both seen and unseen. Of course, you want a good deal, structured to your needs. But you also need the transaction to fit with your goals and aspirations.

DCG Acquisitions is a full-service mergers and acquisitions firm in every sense of the term. DCG Acquisitions is there for you, from the beginning of the process through the final signatures on the agreement. Our professional network of established resources and relationships ensures the success of your new transaction.

DCG Acquisitions has an impeccable reputation and a long track record of proven results because we’re committed to service beyond the sale. Our team has personally closed billions of dollars in transactions to date, and we remain committed to working with both buyers and sellers to resolve any and all issues on the way to a transaction that’s successful and satisfying both parties.

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.