I attended a conference called “The Art of the Deal.” While I get a chance to attend many dealership-focused conferences, many I choose not to attend. However, I thought this was worthwhile.
The general theme of “The Art of the Deal” conference centered on buying and selling car dealerships. Presenters included both public and non-public consolidators, factory folks, attorneys, brokers and accountants including my partner, Butch Williams.
I think the title of the conference was meant to convey the idea that structuring a successful buy/sell is much more of an art than a science. I agree with that concept as far as it goes, but there is more than art involved in a successful deal.
At this conference, both the factory representatives and the public companies contended that buying and selling of dealerships can be pretty forthright transactions. However, the other presenters tended to disagree.
Which camp am I in? Well it depends on whether I am representing the buyer or the seller. It depends on the needs and circumstances of my client. It also depends on the needs and circumstances of the other party to the deal. Each deal that maximizes benefit to the appropriate party is unique. One size doesn't fit all. Anyone who tells you differently doesn't have a clue.
Not long ago we were involved in a buy/sell that's a great example of what I mean. We represented the seller and were negotiating with two different buyers.
Unfortunately, our dealer client was a C corporation (he was not a previous client, so don't blame me for the incompetence of his CPA). That created additional challenges.
As we studied the position of our new client, we also gathered information about the prospective buyers. After understanding the needs and circumstances of the seller, we began to formulate our plan.
However, after also understanding the needs and circumstances of both potential buyers, we knew that to maximize the after-tax cash to the seller, we needed two different game plans.
We then structured two very different offers to sell and presented the appropriate offer to the appropriate buyer. We also took each offer and explained the after-tax results to the seller. The offers were structured to provide essentially the same after-tax results to the seller.
At the end of the day after-tax results rule.
As you see, we painted two different pictures to the potential buyers. Some may call that the “art of the deal.” We call it the “smart of the deal” because it maximizes cash.
While the structure of each deal is unique, there are some basis concepts to consider.
Will this be a stock sell or an asset sale? Very rarely today will a seller get to sell his or her stock and walk away with a totally capital-gain type of transaction and without retaining some liability exposure and without the sales price being adjusted to offset liabilities assumed by the buyer.
These liabilities include potential bad debts, EPA concerns, employment issues, finance and insurance charge-backs and LIFO recapture.
Much more common is the asset sale. Some claim it's a relatively simple transaction. It can be. But often it is in the best interest of one or more of the parties to creatively structure the deal. If the buyer is a relative or key manager, the deal might again be entirely different.
Remember, the best deal structure depends on circumstances in areas such as lease termination, rental payments, covenants not to compete, net operating losses, corporate structures, capital losses, blue sky valuation, consulting arrangements, stock basis, employment contracts, health benefits, risk adversity, inventory values, bonuses, tax-free exchanges, estate planning opportunities or even, in some cases, factory participation.
While not every technique fits every deal, someone on your side needs to know when and where to apply the various structuring techniques. The “sale price” is not the most important factor. The present value of the after-tax cash or cash equivalent is what really counts.
If you or your advisors are not looking at this then you are not maximizing your opportunities. If your accountant and attorney do not have car dealership deals already under their belts, put together a team that does.
Remember, make a smart deal. Leave the art to Picasso.
Don Ray is a Senior Member of the George B. Jones Dealer Services division of Dixon Odom PLLC, a national accounting and consulting group for automobile dealers. He's at 901-684-5643 and [email protected].