Every time you read an industry publication these days, it seems as though yet another tire dealer has been acquired. It’s not your imagination: Merger and acquisition (M&A) activity in the automotive aftermarket has increased significantly over the last few years. And it’s not just among tire dealers – many segments (manufacturing, distribution, and repair and service) are consolidating, and there’s no hint of that trend slowing down.
The aftermarket, and specifically service and distribution businesses, are very attractive to buyers. Buyers — which include private equity investors and larger aftermarket companies — are attracted to the aftermarket, with its consistent growth and opportunities for economies of scale. Consequently, these buyers are paying very fair prices for aftermarket companies and sometimes a premium for well-positioned businesses.
For tire dealers, this creates a great opportunity. If you don’t have a succession plan or just want to be ready when it’s time to enjoy the fruits of your years of labor, now may be the time to kickstart planning for your business’ future.
But selling a tire business is not like selling your house. It’s much, much more involved, with layers of complexity that can make the process daunting and all-consuming. That is, if you don’t know what you’re doing. But you don’t have to be afraid of the process. You can inform yourself about how the sale process works and begin preparing now before you are either forced to sell or are faced with a good offer from a bona fide potential buyer.
So, our first bit of advice is this: Don’t wait — start preparing now. At some point, you will exit the business. You can do it under your own terms, and that requires some advance planning. Here are five things to do as you think about the next phase of your business’s life.
Gather all of your financial information. Potential buyers will want to understand your revenue, gross margins, expenses, inventory, fixed assets and other essential metrics that affect business value. Whatever form they’re in — CPA-compiled documents, QuickBooks reports or just your tax returns — get them prepared for buyer review.
Get Your House in Order
During a sale process, potential legal or financial entanglements that may affect the sale of your assets will need to be examined. Deal with those issues now. And get all of your relevant legal documentation together. Potential buyers will need to review corporate documentation, leases, contracts, licenses — everything required to operate the business from a legal perspective.
Have clear expectations about what you want to get out of the sale process for you, your family and your loyal, long-term employees. What do you want and need financially? How will the business be run after a sale? What do you want to do with business facilities that you may own? What do you want to do after the sale — continue to work, consult for the new owners, do something else? There are different ways to structure deals that will affect how you are compensated and what the business will look like going forward.
Understand what the sales process is like. It’s a multi-million dollar endeavor. It’s complex and can often be overwhelming. But if you know what to expect going in, you can be better prepared to deal with it. And, of course, if you get it done right, it can be extremely rewarding.
Use an Expert
As we’ve noted, selling a business is complicated, and the previous four action items all lead to the conclusion that it’s a great idea to get expert advice. We all engage realtors to sell our houses — and that’s much easier than selling a business. So, talk to an M&A advisor — someone whose not only experienced in the M&A process, but ideally someone who understands the automotive service/tire world. Someone who doesn’t know the tire world will not fully understand how your business works and its value, and that could end up costing you time and money.
Even if you don’t think you want to sell your business now, it is a good idea to start thinking about the future. You never want to be in a situation where you’re forced — unprepared — to sell under terms that are not favorable to you and your family. With some advanced planning and forethought, you can be fully prepared for whatever the future holds.
Schwartz Advisors provides leading-edge and comprehensive M&A and strategic growth advice to middle-market tire dealers, automotive service facilities, aftermarket distributors, manufacturers and investors. For a no-obligation consultation on the possibilities for your tire dealer business, please contact Rick Schwartz at [email protected] or call 858-768-2623. Visit us online at www.schwartzadvisors.com.
Read more from Tire Review’s 2019 Business Planning Guide: Software Systems Drive Revenue for Tire Dealers One Feature at a Time; Customer Financing Options for Tire Dealers; and Improved Bay Productivity Maximizes Profitability.
Check out the rest of the November digital edition of Tire Review here.