In today’s episode of Driving Solutions, Sheldon Sandler, CEO and founder of Bel Air Partners, shares valuable insights into the current state of mergers and acquisitions (M&A). Sandler, a seasoned expert in dealership transactions, discusses the importance of due diligence and the common challenges dealers face when looking to sell their businesses.
The automotive M&A market has been marked by significant deals in recent years, such as Herb Chambers’ $1.3 billion sale of his dealerships to Asbury Automotive Group. Chambers, who had long resisted selling his business, finally decided to cash out after decades of involvement.
Sandler highlights that many aging dealers face similar decisions, often spurred by personal and financial considerations. Selling can be a way for owners to secure their retirement and ensure their business remains in capable hands, especially as family succession becomes a more complex option.
Chambers’ decision to sell to Asbury, a publicly traded company, underscores a growing trend among dealers to seek reputable, secure buyers. While large, publicly traded companies can provide financial stability, smaller, less established buyers may present risks.
Sandler discusses a past transaction where a Wall Street-backed firm acquired a dealership only for it to be revealed as a Ponzi scheme. This cautionary tale underscores a critical point for sellers: it’s essential to know not just the price but the buyer as well. Sandler stressed the importance of conducting thorough due diligence to ensure the buyer is financially sound and has a trustworthy track record. Public companies, which are subject to SEC oversight, tend to offer more security for sellers.
For many dealers, family succession seems like the natural route. However, family-owned dealerships often face challenges when it comes to generational transitions. Disagreements among heirs over the direction of the business can create significant hurdles. As a result, some dealers are opting to sell rather than pass the business on to the next generation.
In fact, the trend of liquidating assets and cashing out is becoming more common among dealers. The emotional attachment to a dealership is strong, but without a clear succession plan or qualified successors, the risk of family disputes can be too great. Selling to a third-party buyer often provides a cleaner exit and greater financial security.
Sandler emphasizes that due diligence is a critical part of the M&A process for both buyers and sellers. On average, due diligence takes about three months, but it can sometimes extend longer due to unforeseen issues. Sellers should be transparent about their business’s strengths and weaknesses, as any surprises during this stage can derail the deal.
Key elements of due diligence include environmental assessments, financial reviews, and a comprehensive look at the dealership’s operations. Sellers who disclose potential issues upfront may be able to address them before they become deal-breakers.
During negotiations, buyers often attempt to leverage information from due diligence to lower the price. Minor issues, such as the need for a new roof, might prompt buyers to push for price reductions. This can be frustrating for sellers, but having an experienced broker can help maintain leverage. A skilled broker can ensure that the seller retains interest from multiple potential buyers, preventing the deal from stalling or being unfairly discounted.
Sandler’s insights provide crucial guidance for dealers considering selling their businesses. The M&A process can be complex, but with proper planning, due diligence, and the right buyer, dealerships can achieve a successful transition. Dealers looking to sell should carefully consider their options, conduct thorough research, and seek professional advice to maximize the value of their businesses while ensuring a smooth and secure exit.
"If you're dealing with the right people who have a good reputation, you're going to have a less of a problem." – Sheldon Sandler
