Enter the Year of the Dragon in the M&A space

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This is Part 2 of two-part series analyzing dealership sales trends in the heavy-duty trucking industry. Part 1 was published yesterday and is available here. In today's piece, we like to look at tried and true strategies that remain vital for maximizing the value of a dealership and streamlining a transaction.

Alexander Graham Bell said, “Before anything else, preparation is the key to success.” To combat the ever-changing market conditions, preparation remains paramount. By properly preparing your business for a sale, you will enhance its marketability and expand the buyer pool.

Buyers are more inclined to evaluate an acquisition target that is well-presented and offers the opportunity to engage in a seamless transaction. Overall, it will maximize the value of your business and increase the likelihood of a successful sale.

Here are some major steps to prepare the business for a sale include:

Clean up your dealership

  • Assets: It is likely a transaction will be an asset sale as opposed to a stock sale, where the assets of the corporation will be sold. With the help of your accountant, clean up your Balance Sheet and Depreciation Schedule to (1) remove assets that have been sold or disposed of, (2) identify personal assets that are not used in connection with the business, and if applicable, (3) reclassify assets that were either expensed or underwent accelerated depreciation. This will help you receive fair-market-value and offer the buyer clarity on the assets being acquired.
  • Parts & Accessories: Perform routine inventory counts to adjust for obsolescence on aged, damaged, opened and non-returnable parts and accessories.
  • Vehicle Inventory: Work to sell through any aged new inventory and unfavorable used inventory as these units may be susceptible to curtailments and/or discounts at closing.
  • Long-Term Contracts: Since these could become a long-term liability for the buyer, they might be a deal-breaker. Review long-term vendor contracts and equipment leases, understand your termination clauses, and if possible, move them to month-to-month. If considering a sale, do not sign or renew any long-term contracts.
  • Real Property: Enhance the curb appeal for a buyer visit and continue maintenance as needed. It would also be prudent to secure an appraisal, allowing you to consider the real estate value as it relates to accomplishing your goals. If you are leasing the property, begin a dialogue with your landlord to understand your rights to assign or sublease, and what will be required of the new tenant.

[RELATED: Smart data analysis can expand sales with existing customers]

Gathering your data

By equipping the buyer with the data required for analysis, it ensures that you receive an informed offer. Buyers may request financial statements, an asset list, inventory reports, real estate data, a description of vendor contracts, management and employee information, dealer/franchise agreements, etc.

Assemble your advisory team

We always advise our clients to surround themselves with a selling team of their trusted advisors to safeguard their best interests. Comprised of an attorney, accountant, financial planner and dealership broker or buy-sell advisor, ideally, your team will have experience with buy-sells in the commercial truck industry. The advisory team will remove the selling process from the dealership to limit the risk of a confidentiality breach and allow you to focus on maximizing the performance.

Finally, keep on truckin'

Performance stability is important during buy-sell negotiations, elevating the buyer’s confidence in the purchase and preventing the deal from being re-traded. Do not take your foot off the gas. Stay involved and engaged, mentally and physically. Remain ready to adapt, quick to resolve issues and continue to run the business as if it is not for sale. This includes facility maintenance, hiring new employees, ordering inventory, and alike. Plus, if all goes as planned, this will be the last time the assets generate income for you and your family.

If you are considering a sale of your business in the near future, it is never too early to begin your preparation, develop your exit strategy and confide in your trusted advisors.

2024 is the year of the Dragon. In Chinese culture, the Dragon is a highly revered and majestic symbol. Dragons are associated with strength, success, and good fortune. We expect 2024 to be a year of opportunity in both career and business. 

Dan Argiro is a senior partner of the Commercial Truck & Equipment Division for Performance Brokerage Services, North America's highest volume dealership brokerage firm advising on buy-sell activity for Commercial Trucks, Equipment, Automotive, RV, Marine, & Powersports.

He can be reached at 540-931-2221 or [email protected].

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