There’s a wealth of information to be had for dealers who are considering selling a business they may have spent a lifetime developing. It’s not an easy call by any stretch, which is why consultants and lawyers often enter the picture at some juncture.
But we have some free advice for sellers to consider. Take it for what it’s worth, and be mindful that it only scratches the surface of a multifaceted process.
Jim Sheffield, president and CEO of UBEO Business Services, reminds sellers to keep everything business as usual throughout the entire process. “Don’t take your eye off the ball, run your business through the transaction,” he said. “Don’t get distracted to the point where your business falls off at the end. It’s got to be a win-win situation, and we need to make sure that all the guys we bring into the fold are paying the minimum amount of tax in the transaction.
“Get a good M&A attorney when the time comes, because the structure of these deals is somewhat complicated,” Sheffield added. “Using a regular attorney is not the wisest thing to do.”
Research the Buyer
It behooves sellers to do as much research as possible on the acquiring company, and consider what may happen to her or her business one to five years after the closing, according to Dan Cooper, president and CEO of Novatech.
“What is the long-term strategy of the company acquiring my business?” Cooper related. “And, how will my customers and employees benefit? Continuing a seller’s legacy is important to us at Novatech. We seek to build on their foundation, but others in the M&A field may not have those ideals at heart.”
Building on Sheffield’s thoughts, Visual Edge Technology Senior Vice President Michael Brigner suggests that sellers run their operations as a business according to the industry benchmarks. Those who run it as a lifestyle business will generally raise a red flag to buyers.
In a sense, the lead-up to selling a business isn’t all that different than selling a home. Fresh paint, new carpets, some new flowers in the landscaping—you can’t underestimate the value of appearances. While you need to have the balance sheet to back up any aesthetic sprucing, it is vital to ensure that any warts are removed before negotiating, notes Jeff Gau, CEO of Marco.
“You don’t want to have underperforming employees,” he said. “When you work through the diligence process, and the buyer asks about your workplace, the sales reps and service technicians, you don’t want to be hemming and hawing. Vetting out the staff early on is a good idea.
“Optimize your service margins, supply levels, staffing, parts utilization. Have a good handle on your service model. Clean up old inventory, make sure it’s within the last 12 months. With facilities and vehicles, are they going to be part of the transaction? You don’t want to have a 1985 look with your business. You don’t want the vehicles rusty, have them looking good. It’s all a part of your image and can go a long way when you’re going through the process.”
Desired Outcomes
Defining expectations can go a long way toward avoiding disappointing outcomes. Chip Crunk, president and CEO of RJ Young, believes sellers need to have a firm idea of what they want that outcome to entail.
“There are certain people for whom their outcome is simply dollars and cents,” he said. “Some of them are really concerned about their people. A lot of them are concerned with what’s the effect going to be in the community, and making sure that they’re going with somebody who’s going to provide the same level of support and service that the customers were seeing when they were running the business.”
The market conditions are certainly ideal for sellers, according to Dan Ruhl, a principal with Oval Partners, the private equity engine behind Flex Technology Group. The economy is strong, interest rates are low and leverage markets are good. Further, not only are the conditions optimal, but dealers have a strong roster of alternatives among the buying community, he said, which gives sellers a better chance at achieving their objectives beyond mere price.
Ruhl also offered this nugget of advice regarding EBITDA. “There’s a lot of focus on multiples of EBITDA, and a lot of times that’s led a seller to believe that they have to wait to achieve that actual performance, when in reality, if there’s an adjustment that’s made to the business, it’s going to change the business on a going-forward basis,” he said. “A buyer doesn’t have to see that full 12 months to give the company credit for profit improvements. It’s best to get somebody to come in and provide them with value—an investor buyer to provide them with a value for their business—and move forward if it’s something that works for them.”
