By Jamie LaReau, Crain News Service
DETROIT (Dec. 23, 2013) — Former auto dealers Jim Kevil and Mike Kevil, who are brothers, were ready to accept a lucrative offer to buy their car dealership in the summer of 2011.
Then they changed their minds.
“You have something you built there for a while, and you don’t just want to turn it over and give it up,” said Jim Kevil, 56, former co-owner of Kevil Chevrolet in Bud Lake, N.J.
The partners decided to keep the store for another five years. Unfortunately, Mike died in December 2011. So Jim sold the store about a year later.
The Kevil brothers’ initial cold feet and decision to back out of a deal are not uncommon among sellers.
Brokers say it happens more frequently than they would like. Some estimate it happens in about 10 percent of all deals, though usually early on. It’s rare for a seller to reverse course after negotiations are settled.
When that does happen, it becomes difficult to reconstruct an offer with the same buyer later or even get as good an offer from a new buyer, brokers say. That’s why many brokers watch for red flags in the beginning of a relationship with a seller that might indicate that a seller is not emotionally ready to go through with a deal.
“We get paid by completed transaction,” said Alan Haig, managing director of brokerage firm Presidio Group in San Francisco. “If I have a client who changes his mind about a sale, especially when there is a very good price on the table, it’s damaging to us as well, both financially and to the reputation of the company, because then buyers are hesitant to work with us if we haven’t fully vetted a client.”
Mr. Haig looks for three big, red flags when vetting his clients:
1. A seller with unrealistic financial expectations.
If a seller expects an exorbitant price, “there is a low chance of the deal closing,” Mr. Haig said. To avoid that problem, he gives potential sellers an estimated range of values for the auto dealership that a buyer might offer.
“If they feel that is a fair value for their business today, then we’re excited to represent them,” Mr. Haig said. “If they want it to be millions more, then we have to say, ‘Let’s figure out how we can make your company more valuable in the next few years.’”
2. A car dealer who is too young to retire.
“We get concerned that younger dealers might be interested in selling so they can get a crazy price for the dealership,” Mr. Haig said.
3. An auto dealer who can’t let go of the lifestyle.
“They serve on boards and are very visible in communities, and they have social lives with other dealers,” Mr. Haig said. That kind of high-profile role can be hard to relinquish.
Broker Mike Issa usually works with car dealers who have to sell because their businesses are in distress.
“If they say, ‘I’d rather not sell,’ I would say, ‘OK, let’s talk about the financial issues,’” said Mr. Issa, California managing principal of financial advisory firm GlassRatner Advisory & Capital Group in Irvine, Calif.
“If they’re in Chapter 11 and want to do a reorganization, I will say, ‘Here is what you need to do’ and talk them through the issues until they see the only viable action is to sell.”
Mr. Issa said he uses common sense and empathy to help sellers through the emotions of the process. He reads author John Gray to train himself on psychology, he said. Mr. Gray famously wrote “Men are from Mars, Women are from Venus.”
“People just want to be heard. If they get that you really heard them, then they feel you actually have empathy for their situation and aren’t just in it for a paycheck,” Mr. Issa said. “Also, you get some good information. A lot of people will tell you their story and their feelings about what’s going on. That will help you triangulate the whole situation.”
This report appeared on the website www.autonews.com/ of Automotive News, a Detroit-based sister publication of Tire Business.