Automotive News - February 10, 2020 - Supplement - S4

buyer to get a clear picture of what they're buying and that it's worth
what you're asking," Allison said.
Sometimes "books" are very extensive, especially if a dealer
is selling multiple franchises. But Dougherty thinks that a more
streamlined and succinct book works better.
"Sellers also should keep in mind that if all the financial information
is thoroughly compiled and well-organized, it makes it easier for buyers
to perform their due diligence faster and more efficiently," Dougherty
said. "There are numerous ups and downs and twists and turns...and
a seller needs to be prepared for this."

Finding qualified buyers

It helps if you know there's a
good chance they'll run your
dealership similar to how you
did and maintain its good
reputation in the marketplace

The seller is likely the best person to identify qualified buyers.
Members of the sales team are likely to know other potential qualified
buyers. A good broker in this industry will likely have the broadest
range of contacts to identify potential qualified buyers.
The seller normally will control the list of potential buyers. A seller
that wants to exclude certain buyers for some reason is able to do
that.
It is always good to have two or three potential qualified buyers.
This is not only helpful in maximizing sales price but also provides a
competitive price check on the seller's own idea of value.
Sellers also should try to get an understanding of the culture at
dealerships owned by potential buyers to see whether it's a good fit
for their employees.
"After a sale, it's never going to be exactly the same as when you
owned the business," Dougherty said. "But it helps if you know there's
a good chance they'll run your dealership similar to how you did and
maintain its good reputation in the marketplace."
Speaking of corporate cultures, Allison pointed out that in some
instances, dealers prioritize the culture of the buyer over the ultimate
selling price of the dealership.
"It all depends on your priorities," he explained. "It's up to you to
decide if getting less than top dollar is worth it to provide and maintain
the legacy that you have spent years building."

Capital Gains
Sale-leasebacks enable dealers to invest more in operations, less in lowerperforming real estate.
Acquisition-minded dealers should be aware of a financing
tool that can save them significant amounts of capital up
front-funds that then can be redeployed in substantially
higher-yield investments.
This mechanism, known as sale-leaseback financing,
enables dealers to plow their hard-earned capital back into
operations-or even more acquisitions-instead of tying
up their equity in real estate, said Dan Garces, director of
acquisitions and a senior vice president of Capital Automotive
Real Estate Services, Inc. (CARS).
Here's how a sale-leaseback works: Instead of a dealer's
obtaining a traditional mortgage to finance the real estate
portion of a dealership purchase, CARS steps in and buys the
4

property. Then the dealer leases the property from CARS-
typically for 20 years, with multiple 10-year renewal options,
Garces explained.
"We buy the property at 100 percent of its fair market
value," he said. "Dealers then need no capital for a down
payment on the property. They can buy a store without putting
millions of dollars of their own equity into the real estate, which
results in a significant savings."
Generally speaking, the lease payment will be slightly
higher than a mortgage payment because with a mortgage,
the dealer borrows less money because of the down payment.
On the other hand, that down payment is frozen capital and
may earn zero to modest levels of return. The net effect of

Automotive News - February 10, 2020 - Supplement

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