Dealers, it’s okay if you don’t know how much your dealership is worth. At least not today.
But if you hope to sell and exit the business any time in the near future, it would be a good idea to start planning tomorrow.
That was the consistent message from experts at Performance Brokerage Services and Morgan Stanley during an American Truck Dealers (ATD) webinar Tuesday on understanding dealership valuations and positioning a dealership for a sale.
Selling a dealership is an incredibly difficult (and personal) process. Morgan Stanley’s Paulina Matel says industry research indicates a dealer’s business often represents 80% or more of their wealth, yet nearly half of dealers surveyed have no defined exit strategy or succession plan (and 78% have no formal advisory team to manage that exit when it occurs). Matel says this unevenness is terribly unfortunate for dealers, and is one of many reasons why 88% of dealers who have recently exited the market are not satisfied with the outcome of their sale.
“Without a clear exit plan you can lose out on that [dealership] value that you worked so hard to create,” she says. “You want to make sure you can exit on your own terms.”
Tuesday’s panelists made it clear the best way to do that is through intentional, proactive planning.
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Paulina’s colleague Brad Stanek advised webinar attendees to begin exit planning at least five and possibly ten years ahead of an exit date goal. Stanek says exit planning doesn’t take that long, nor does a transaction, but preparing for a sale ahead of initiating one reduces the likelihood of major derailments or valuation mistakes. Planning ahead also protects a seller if their timeline is altered or moved up, which he says happens more often than many realize.
When you have a plan “you can adjust it as you go along,” he says.
What should a plan look like?
Performance Brokerage Services’ duo of Pat Albero and Dan Argiro says a good exit plan is more than just an exit date on a calendar. It’s a detailed document listing key stakeholders, a seller’s financial goals and earning requirements, tax expectations, successor information (if known), OEM expectations, dealership valuation data and more. Regarding valuation, the duo says that segment should include updated assessments regarding real estate, fixed assets, inventory, accounts receivable, customer demographics and purchasing data and growth projections.
During a sale, commercial truck dealership prices are developed by compiling all valuation data above and EBITDA numbers with Blue Sky multipliers to determine an optimal price. Albero says Blue Sky can vary substantially based on the quality of a business and says far too often selling dealers get caught up in what they think their business is worth from a Blue Sky perspective and unintentionally weaken their own deal. He says the best thing dealers can do is ignore those calculations for as long as possible, especially before an exit plan is underway.
Adds Argiro, the best way for a dealer to maximize the earnings potential of selling their business is to run it as if they have no intention of selling it until the day the transaction goes through. Taking your foot off the gas and failing to invest in a business you’re trying to sell never ever increases its value, he says.
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“Not running the business can cost you millions of dollars in Blue Sky,” he says.
Tuesday’s panelists also spoke of the importance of outside expertise in facilitating a successful sale. Accountants, attorneys and other third parties that support a business in operation are not always the best sources to support that same business during a sale because it’s an area where they are less familiar. The panelists say when you’re only going to sell your business (and your life’s work) once, you want to leverage the best experts you can find to get the most value out of it.
Albero says that’s what Performance Brokerage, Morgan Stanley and similar firms can bring to the table.
“We put all the cards on the table,” he says, adding, “Your best option doesn’t need to be defined today. It might not be defined for a few years. But when it is, you want to be able to execute accordingly.”
