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Buy Sell Update

Guest post by: Mark Johnson

Article Overview: Document your loans properly, or risk losing your own investment.

Buy Sell Update

BUY SELL UPDATE

Dealers: Document your loans properly, or risk losing your own investment.

Talk about frustrating. Often, buyers and sellers of dealerships agree on the BIG THREE, which are 1) blue sky 2) real estate and 3) fixed assets. But then they get bogged down in a murky buy-sell document.

When you work on buy-sell documents over and over again, you recognize the villain of "imprecision." In a professional buy-sell, common standard provisions always appear. Unfortunately, most dealers and non automotive attorneys draft few buy sells, and thus have limited access to or understanding of these standards. And you need to know which provisions are considered "second sticker."

Here are some basic concepts you should watch out for:

1. Due Diligence Review of Documents and Records. 30 days due diligence doesn't mean much when it takes two weeks to get the documents. The 30-day period needs to start when the documents are delivered.

2. The Environmental Assessment. If a Phase I ($2,500) calls for soil samples and a Phase II ($25,000) is done and the study calls for cleanup AND kills the deal, you need to decide who should be out the $27,500. Dirty property is typically a seller's liability.

3. Non-Competition Agreement. Most buyers want you and your money out of the market for three to five years. What if you own another store in the market or have a large used-car operation? Sometimes conduct (non-solicitation of employees and customers) is more important than radius or time.

4. Assumption of Seller Liabilities. The ADP/Reynolds contract or leases on adjoining properties are normally the most contentious. It's customary for the buyer to take these contracts or pay to close out the obligations. It is just a matter of paying more or less blue sky.

A credible, professional buyer will deliver the form of the buy-sell along with the term sheet. Everything will be spelled out - no surprises, no obscure language that results in a "price change" at closing.

If you are dealing with people who have bought and own many stores, and they deliver a document to you that is missing any key provisions (holdback, payment of the sales price of new and used cars), it was probably intentionally vague.

Remember: Nothing positive comes after the words "intentionally not addressed." Call us to discuss other standard provisions, processes, value or pricing.

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Article Tags: AUTOMOTIVE, DEALERSHIPS, DUE DILIGENCE, MANAGEMENT, MDJOHNSONINC, NBB



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