Automotive News Canada - February 2024 - 7

Roadmap for employees
buying a dealership
Dos and don'ts to make the transition possible
Buying the dealership you've worked at for years, or even decades, may initially seem like something too large and complex to pull off. But this can be done in
most cases, even if this requires new and unique approaches.
You likely know the ins and outs of the operation and already have a vested interest in the success of the business. You're in tune with the industry and know
what it takes to keep the dealership going and growing. In most cases, managers helped build this value through hard work and good decision-making.
But there are some critical considerations you'll need to make before committing to a dealership purchase.
Five things to prepare/establish before moving forward with a purchase process
If you're already part of an employee share ownership program (ESOP), you've likely had many conversations with the owner about their objectives and timelines for handing over
the keys. If not, get involved in the process as soon as possible and commit to having open and honest conversations with the owner.
If your employer has expressed interest in developing an ESOP but has not done so yet, MNP's SMARTshare™ program offers a comprehensive system for business owners to bring
their employees into the ownership of the business and plan for their own future exits.
Once you know the future ownership and exit strategy of the owner, you can build a more informed assessment of the situation, including:
1. OEM requirements
Invest the time to understand the role and influence the Original Equipment
Manufacturer (OEM) will have in the sale of the dealership. OEMs typically have very
specific criteria on who may be the principal dealer/ owner and what percentage of
shares they need to own. They also have the final say on many aspects of a sale and can
veto a sale if their conditions are not met.
2. Support team
Having a trusted business advisor will be instrumental in ensuring all of your ducks are
in a row and that you're in a good place to make the transaction successful. In addition
to learning more about the financial side of the purchase, an advisor can help determine
what sort of structuring you'll need to have in place to facilitate the purchase, if you
need to incorporate a new company, and what financing needs to be in place to enable
you to buy the business in the most tax-effective manner.
3. Financing
Knowing where the financing is coming from to purchase the dealership is obviously a
critical step, especially given the high valuations we see in dealerships. Having bank or
vendor financing in place is important to provide a clear roadmap to all stakeholders. The
current owner may be willing to structure the sale either partially or entirely as a type of
vendor take-back loan that may not require full bank financing. All of this will depend on
the timing of the sale, the vendor's own retirement and tax planning, and clarity around
the cash flow required to make it work. If the owner wants to sell and cash out fast, a
bank will need to be involved.
4. Assets vs. shares
Is the purchase going to be an asset purchase or a share purchase? Depending on the
answer to this question, there are many variables to be considered, and the structure
will need to reflect that, as will the conversations with the current owner. Keep in mind
that if you're buying the shares of the dealership, you're also buying all of its liabilities
and past history. Like many aspects of purchasing a business, this may have legal
ramifications. An asset purchase will leave all the history and the responsibility that
comes with the past with the vendor.
5. Due diligence
Don't rely only on the current owner to do your due diligence. Your inside knowledge
may not be sufficient to understand all of the business risks yet. Due diligence is more
than just understanding the risk: it ensures that you have everything in place with
systems, legal issues, etc., to ensure that any transaction is transparent.
There are many moving parts to own and operate a successful dealership long-term, to
retain good people, and to build equity and value for the new shareholders. Develop a
plan that helps you work through these large structural pieces; it will greatly increase your
chances of success.
Things to watch for throughout the purchasing process
If you are currently a member of senior management, recognize that the current shareholders/owners are working through some of their own questions and big decisions around
succession planning, valuations, and financial risk. Some of these discussions you may be party to, some not, and thus some patience is required to ensure the process moves forward
with intention - but without stakeholders digging their heels in under pressure.
Finally, there are a lot of new implications that come with becoming a shareholder of a dealership. While each purchase will be unique, you'll want to consider your own eventual
family succession, agreements between shareholders, financial, tax, integrity, and cultural nuances.
What's next?
The earlier you can start planning for this process, the better. Assuming you've already begun or have been involved in conversations with the current owner around their intent to
sell, be sure to get any agreements and commitments made in writing.
Few parts of a purchase and sale process can be done in isolation. You'll need to speak with all of the shareholders and, in the case of an ESOP, be involved in any parameter setting
as it relates to a down-the-road sale. This is especially important when you are purchasing a minority stake or an ownership stake that will grow significantly over time.
Engaging with MNP early can help you explore all of the options available to you and work towards finding the most suitable and beneficial course of action for everyone involved.
For more information and expert advice on purchasing a dealership, contact Chris Schaufele, National Leader, Dealerships, at chris.schaufele@mnp.ca
MNP.ca

https://www.mnp.ca/en/clients/dealerships

Automotive News Canada - February 2024

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