Digital Dealer - March 2019 - 34

D E A L E R OP S & M ANAGEM ENT: Bu y/Sel l

By RYAN KERRIGAN
Managing Director,
Kerrigan Advisors

Tales from
the Front-Line
of Auto Retail
Buy/Sells
Why Deals in Auto
Retail Do Not Close
as Often as They
Could
An oft-repeated phrase
we hear regularly from
dealers considering selling
their stores is "I already
have identified a buyer."
Well and good, but "having a
buyer" and getting a
transaction closed are very
different, and often not all
that correlated. For dealers
that are serious about
selling their dealerships, do
not confuse identifying a
possible buyer with a
successful sale process.
Frankly, one of the unique
aspects of auto retail buy/
sells is how infrequently
transactions close. I'd be
hard pressed to find another
industry in which the conversion rate of "deals" to executed transactions is so low.
And, there are some basic
reasons this is the case. I'd
point to three specific issues
that largely explain why our
industry struggles with this
issue.
First, it's a common
habit of dealers to respond
34

MARCH 2019

to calls from prospective
buyers. Buyers reach out to
auto dealers in myriad ways,
ranging from the direct dealer-to-dealer conversations
at 20 Group meetings, hiring
bird-dogs to scout specific

discussions were with a free
agent, or a bird dog, working
on behalf of a publicly traded auto retailer, who later
informed the dealer that the
public was not interested
in buying his business.

FOR DEALERS
THAT ARE SERIOUS
ABOUT SELLING THEIR
DEALERSHIPS, DO NOT
CONFUSE IDENTIFYING
A POSSIBLE BUYER WITH
A SUCCESSFUL SALE
PROCESS."
regions, and even dedicating young, full-time staff to
"dial for dollars."
Case in point, a Southern
California dealer thought he
was being approached by a
large public two years ago.
The dealer was excited as
he was seeking the chance
to grow his platform, and
possibly "team up" with a
much larger company. He
eagerly engaged with the
individual who called him,
signed an NDA, shared
financial information and
discussed the prospect of
selling. As it turned out, his

D I G I TA L D E A L E R . C O M

The dealer was crestfallen
and disappointed that he'd
invested months in going
down this unproductive path.
The recent entrance of
private equity and outside
capital has further upped
the game. Professional
investors allocate significant
resources to business development, which in this case
is defined as "the process of
identifying as many deals as
possible, to create a large
pipeline of possible investments." Business development efforts are usually
staffed by junior investment

professionals or can take
the form of outsourced call
centers that simply represent investment groups.
Similarly, there are companies called "buyside firms",
which are a more sophisticated version of outsourcing
services to identify deals. In
any case, all of these efforts
represent the very top of the
investment funnel. Calls,
extensive conversations and
even data sharing with these
individuals is the equivalent
of a first date. These individuals are no more authorized
to buy your dealership than
your newest car salesmen is
to sell it.
When considering professional capital, it is critical to
understand their business
model. Professional investors are in the business of
identifying a few grand-slam
investments each year, usually spanning a wide range
of industries. The best practice to achieve that annual
goal is to identify hundreds
of deals to send through
their investment funnel.
They often discuss "100 to
1" - that is to say, an active
firm will evaluate 100 deals
for each deal that they do.
The business development
professionals mentioned
above are charged with
identifying those hundreds
of deals, so it's important
to view any outreach and
any conversation in that
light. There is a one percent
chance that these early
conversations will result in
a sale, regardless of how
much their "interest," "excitement" or "commitment" are
discussed.
Another recent anecdote
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