3 Reasons Why You Have to Use an Intermediary for Acquisition
The first question is always, why use an intermediary when I know what I want? Sure, you may know what you want regarding a dealership that you’re hoping to acquire, but are you entirely prepared to handle all negotiations, emotions, phone calls, emails, support professional searches, and deal with the less attractive sides of acquisition? Of course not—you have a business to run!
The bottom line, in dealership acquisitions, is that there will always be topics the buyer cannot discuss directly with the seller, and that the seller cannot discuss directly with the buyer. For example: Does the buyer actually have enough money and net worth to buy the dealership? It is very tough for the seller to ask the buyer this directly.
Often the most important issue is the pricing of the deal and it’s virtually impossible for buyer and seller to discuss this directly without someone losing face. The result is often simply that the deal just doesn’t get done. Things that affect price and are hard to talk about are the dealership location; the lines carried; and often the financial results.
With the amount of passion and hard work that goes into building a successful dealership, no owner (ready to sell or not) wants to hear that the result of their years of hard work is a C in the buyer’s eyes. The intermediary is an expert at listening, summarizing, rephrasing, and taking the emotion out of these and many other very difficult topics so the deal gets done.
“But Intermediaries are Expensive!“
I often hear this from prospective clients and there are a few factors that contribute to the cost. First, the skills required to fulfill this role is a combination as scarce as a Sasquatch in the desert.
Intermediaries need to have very strong financial expertise – CPA, MBA, or other senior level understanding of tax and financial information and the experience to understand buyers and sellers motivations. They also need the ability to read and understand legal contracts, business valuation skills, very strong human interaction skills, marketing skills, a wide circle of contacts, and incredible tenacity. Intermediaries must have an easy willingness to pick up a phone and cold call buyers and sellers. As well, they require the self-governance and self-motivation to work towards your goal every single day. This unusual combination of skills is essential to get the deal done.
In your own dealerships, why do the salespeople get paid the most? Because their pay is at risk. If they have a bad day, they may not get paid at all. In this industry, intermediaries may work for months with the risk of not getting paid at all. The higher the risk, the higher the return (or cost) in all industries.
1. An Intermediary Helps You Dial In
Once you have identified an acquisition target – how do you know what you’re looking at? What’s it worth; what are its strengths and weaknesses; what are the growth opportunities in that dealership?
We look at your target’s results and benchmark them first. The numbers tell a story about where the target is strong and weak. Those strengths and weaknesses drive what you should and shouldn’t pay for the dealership.
The point of this is to determine a fair price for the dealership you wish to acquire. The benchmarking we do is part of a valuation to determine the expected selling price for the business.
2. Intermediaries Focus on Your Specific Goals
There are two scenarios when you’re considering an acquisition.
- Scenario #1: Acquire well-run dealerships that are fully staffed and will continue to generate cash flow with less attention needed.
- Scenario #2: Acquire dealerships that have growth potential or are in turnaround situations.
You have to know which goal you’re after—any blurred lines within your growth plans will cause issues that you may not be prepared for. An intermediary will work with you to evaluate the pros and cons of both avenues and identify which goal is best for your situation. This will depend on numerous factors like available capital, time willing to spend, how much risk you’re comfortable with, and more.
3. Intermediaries Close the Deal with Ease
There are a lot of emotions at play on both sides of the transaction. Sellers are giving their babies up for adoption, and buyers are nervous about the unknowns they are inheriting. Intermediaries have been through it, know what to expect, and are there to buffer and quarterback the process. In our industry, this all takes time. Navigating the approval processes of multiple manufacturers, multiple floor plan providers, accountants, attorneys, and a multitude of other issues requires knowledge and patience. You need someone to manage all of this and keep the flow moving along at a reasonable pace to the finish line.
Let’s Get in Touch
If you are buying or selling and need some support, then we should talk. Our decades of experience gives us unique insight into these sensitive deals. Our team will facilitate the process in a streamlined way that brings you the most desirable outcome.
Stacey International is a group of credentialed, knowledgeable, experienced senior executives focused on helping business owners buy and sell businesses. If you are ready to exit or just starting to think about it, give us a call. We can help you get the highest possible selling price now or in the future. Let’s connect.