Gareth O’Hara, motor industry specialist and managing partner at Midlands legal practice, The Wilkes Partnership, provides a guide on what to look for during the process of acquiring a new dealership.
When expanding a business through acquisition, it is vital to understand the full facts surrounding the business being purchased.
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The acquisitions market for car dealerships is no different, and having conducted more than 40 deals in this sector, we have a keen insight into the way that businesses are bought and sold.
Before even starting a buying process, having a thorough understanding of the market and assessing the factors that impact are vital to deciding whether it is the right time to do a deal. In this rapidly fluctuating industry – which can be susceptible to factors including labour costs, property costs and the revolution of electric and hybrid vehicles – it takes research and a keen business mind to succeed.
In fact, some fantastic deals have been conducted in a down market, and many of today’s largest dealerships formed, established and thrived through the recession. So, regardless of whether we are worried about recession or Brexit uncertainty, there are always opportunities.
What really matters comes down to grasping opportunity, making the best deal for the right price, and reacting to the market rather than fearing it. To make the best choice, regardless of economic climate, here is a useful checklist to follow dealing with major issues that need to be covered in the legal documentation.
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1. Ensure that the customer database is transferred and live on completion.
Sometimes data can be transferred or held by the data supplier on behalf of the buyer before the deal is complete, and held ready to release.
2. Are employee terms and benefits consistent with what you expect? Have employees been properly consulted and notified in accordance with relevant legislation?
3. Do any family members that are no longer active or want to be active in the business after the sale need to resign?
4. Are you happy with the quality and age of the vehicle stock, and particularly the parts stock, that you are paying for? Have you checked it thoroughly?
PROPERTY
1. Does the title plan match the property itself? Are there any unexpected rights-ofway or shared-occupation issues?
2. Do you actually want everything on the site? Many dealerships have shared facilities with other neighbouring sites. A survey and valuation may be required, particularly if finance is involved from a third party.
3. Do you need to keep the business separate from the property using a property holding company?
LEGAL
1. Have you agreed the terms of any new franchise agreement?
2. Are you buying the business’s telephone numbers and domain names? This will be crucial if it is a shared site, or the number is for another dealership on the same site.
3. Are there any assets included that should not be part of the business? Can these be bought out by the sellers before the deal?
4. Have all litigation and disputes with customers been settled? If not, make sure appropriate indemnities are included in the contract. How will you deal with these going forward?
5. Are all the cars you are buying with the franchise as described? Have you checked them all? Do you understand the finance position on any vehicles? Does any finance need repaying on completion?
6. Has a principle been agreed for any remedial works to vehicles that have been sold and subsequently come back with complaints? An hourly rate and a cost for parts will need to be agreed; this is usually at a discounted rate for carrying out the work.
7. Ensure that a procedure is in place for sharing any profit on vehicles ordered but not yet delivered.
THE SALE
1. On completion, will someone from your team be on site to collect property keys, alarm codes, laptops and mobile phones, and be able to check that everything agreed in the sale is on the premises?
2. Is new insurance in place on the business and its assets?
3. If it is an asset purchase, are all charges released? If it is a share purchase, are relevant charges in place and are they in line with existing facilities?
4. What promises have been made to customers? For example, servicing and free MOTs or any warranties provided that could be called on in the future. How are you dealing with this?
5. Ensure that someone from your existing business is on hand for the first few weeks to deal with any issues that may arise.
To get the best deal for both buyer and seller, all aspects need to run smoothly to ensure every eventuality is prepared for.
Understanding and dealing with the issues makes for a smoother acquisition for all parties and, more importantly, a seamless service for existing customers.
The right legal expertise assists in the process and, more importantly, ensures that all issues are dealt with properly in advance of completion.
This means the buyer can concentrate on the business, and the seller knows they have disclosed any issues that could result in a claim against them.
