GNYADA May 2017 Newsletter

AlliedMember Memo

13 In the Market to Sell a Dealership? by Ken Rosenfield, Rosenfield and Company, PLLC

The past year has seen a tremendous increase in the sale and acquisition of dealerships, both regionally and nationwide. With more buyers in the market than sellers and the cost of capital being so low, there have liter- ally been bidding wars for dealerships of all brands, locations, and sizes. To command your price, position your dealership for sale just as you would your residence. The better shape your financial records are in, the easier the exchange of information will be. Other items to have in check are Essential Tools Inventory Compliance, Technician Proficiency Compliance and where you stand with your DMS contract. Additionally, you will need to get your leases and other infrastruc- tural commitments together such as oil and paint contracts. If those are not taken over by the buyer, they could come back to haunt you. Account for Your Market Your dealership’s worth can vary depending on market size, location, market effectiveness and facility com- pliance. The multiples published by Prepare Financials, Tie Up Loose Ends

various brokers can be a good start, but these figures come from limited data — typically large institutional buyers in major metropolitan markets. In many cases, a single-rooftop deal- ership is part of a bundled transaction. To support a higher valuation, obtain early data such as market effective- ness, pump in/pump out data, units in operation, CSI, and your peer group reports from your OEM. Putting together reports of financial data and cash flow returns is time well spent. Buyers should be similarly prepared to support that they are financially able to acquire your dealership. Determine Your “Blue Sky” Worth From a buyer’s perspective, determin- ing a dealership’s intangible value — also known as “blue sky” value — is key. With the competition of qualified buyers, the relatively low cost of funds, and the high return on invest- ment in the automotive retail industry, there are many investment-oriented ways to analyze an asset’s “blue sky” worth. One of these is a payback-on- investment method. Overlay the expected operating structure and expenses over current sales volume or what the manufacturer suggests based

on their market study.

Exercise Due Diligence One of the most important aspects of protecting your investment in your dealership is due diligence. Typically, transactions are only purchases of assets. The assets acquired should be tested for market value and condition. In the valuation of inventory, ensure that all programs and manufacturer credits are accounted for. If the dealer- ship’s DMS system is going to be continued, conduct a thorough check of the system, hardware and licensing agreements. If the DMS will not be continued, be sure to obtain the cus- tomer files, service history, etc. Rosenfield and Co, PLLC, a GNYADA Allied Member, serves the greater New York region and has one of the largest automotive retail practices in the country. They offer a broad spectrum of services to dealers, such as valuation and merger/ acquisition and operational consulting, and financial statement preparation. If you are preparing to sell or acquire a dealership, contact Rosenfield and Co. (917.818.2720) for help with due dili- gence or sales information programs. GNYADA can also help you with DMV licensing needs. To discuss these require- ments, call Sue Bieber at 718.746.5900.

Greater New York Automobile Dealers Association • www.gnyada.com

The Newsletter • May 2017 9