Digital Dealer - March 2019 - 35

underlines this point. The
management team of a
large, successful group
met with a private equity
firm that expressed great
interest in auto retail and
investing in their very large
enterprise. After a series of
dropped balls and miscues,
it became apparent that the
individual was in business
development (discussed
above) and had not even
presented the investment
opportunity to the investment professionals at the
firm. Many weeks later,
after repeated outreach on
the part of the dealer, the
management team and an
investment partner spoke
for the first time, the deal
was introduced, and the
conversation went nowhere.
The over-arching point is
that responding to an inquiry
is a low probability strategy
for selling your dealership
or dealership group. An
exciting first call should not
be confused with a serious
interest in your business.
Shifting to the second major structural issue: timing
and leverage. Even assuming that there is real interest
on the part of a prospective
buyer, responding to buyer
outreach immediately hands
all of the leverage in the
sale process to the buyer.
The buyer has now "tied up"
the conversation for a period of time, has the ability to
review information on their
own timeline without anticipation of a competitive sale
process, and can ultimately
offer a price in a non-competitive setting, which often
results in a lower sale price
or no sale at all.

None of this is to the
advantage of the seller.
There is no control on
timing, no control on price
and no guarantee that
there is serious intent. To
cite another recent example, an East Coast dealer
received a very persuasive outreach to sell their
business to a pair of auto
industry executives backed
by big capital. They went
through a very drawn out
process of due diligence,
negotiation, and renegotiation. After repeated delays,
the dealer learned that the
buyers were drawing out
the process, so they could
raise the money to fund the
acquisition. The dealer was
pregnant with the transaction and did not have the
energy to start over, so he
gave them yet more time to
line up the capital and see
if they could close. The buy/
sell did eventually transact,
but only after significant delays, uncertainty and price
concessions on the part of
the dealer.
Similarly, a top dealership
group was approached by a
very real, deeply capitalized
family office about selling
their business. Calls and
meetings took place, meals
shared, and significant data
was sent to the family office
over many months. Yet, for
all of this work, the transaction did not progress, and
the family office indicated
they were "watching the
business performance to
get comfortable". After 18
months and no action, our
firm was hired to sell the
group, and the family office
did not even participate in

the sale process. Ultimately,
they were not serious buyers in our industry, but they
were happy to tie up the
investment opportunity so
as to add more potential opportunities to their pipeline.
Finally, the third issue is
that dealers often engage
in transaction discussions
without doing the pre-work
necessary to achieve a successful sale. Finding a buyer
is the simplest step in the
sale process. The challenge
is getting a transaction to
the finish line. In the absence of clean accounting,
clearly defined add-backs,
updated appraisals, litigation
logs, performance analysis
and other disclosures, a
sale does not generally go
through. A real deal can
only happen after reams of
information are shared and
analyzed and the buyer has
the required information
he needs to support the
sale price and close on the
transaction. This requires
a lot of upfront work and
preparation.
In our experience, there is
an extensive list of dozens
of materials that must be
reviewed, analyzed and
often updated in order to
achieve a successful sale.
We are big believers in the
need to get that work done
in advance of talking to buyers. Until you have done all
of this work, I would argue
you do not have a real buyer. You have a tire kicker. A
buyer simply cannot commit
to a deal, particularly one
with a strong valuation, until
there's been a very thorough assessment of all of
this information and more.

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

The anecdotes that I am
sharing are representative
of many dealer experiences
in recent years, and these
failed efforts to initiate transactions can be tied to three
key issues: the business
model of professional investors in which they review
100 opportunities to find
one investable business,
granting too much leverage
to buyers by responding to
their inquiries, and lack of
preparation for a transaction.
In our experience, the
way to maximize the odds of
a successful transaction on
favorable terms to the seller
is to get prepped in advance and run a competitive
sales process. Car dealers
understand the importance
of a defined, effective sales
process in selling cars, and
that applies to the buy/sell
world as well. If you want
to sell the car, hold gross,
and actually transact, a
best-practice sale process is
key to success. Selling your
dealership is no different.
RYAN KERRIGAN is managing
director at Kerrigan Advisors.
Kerrigan Advisors is a leading
advisor to sellers of higher
value dealerships and dealership groups throughout the U.S.
Ryan works with private equity
clients advising them on their
auto retail investment strategy
and works with sell-side clients
seeking private equity exit. Ryan
has extensive experience in both
private equity and auto retail,
having run his family's dealership.
He started his career at McKinsey
& Company as a management
consultant, advising Fortune 500
companies on growth strategies,
organizational issues, pricing,
and business valuation. EMAIL:
ryan@kerriganadvisors.com.

MARCH 2019

35
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