HOW TO MAXIMIZE VALUE WHEN SELLING

In today's thriving economy, corporate mergers and acquisitions are making headlines.

Technology companies, manufacturers and financial institutions are all consolidating, creating entities with critical mass - and the automotive industry is no exception to this trend.

Automotive dealerships are rapidly changing hands as aggressive buyers swallow up smaller entities in an effort to dominate a region and reach a size that would permit them to take their companies public.

In addition, technology is making it increasingly easy for dealerships to be operated like big business - a car lot in San Francisco can be operated from corporate headquarters in Miami thanks to improved information transfer capabilities and electronic commerce.

Running a dealership is no longer a skill passed down from father to son. Technology has made it a science.

Major indicators suggest that the burst of consolidation the industry has experienced in 1997 and 1998 will continue. If you decide to sell your dealership, first carefully consider several factors to ensure the greatest return.

Basic Housekeeping Do not wait until you receive an offer to put your "clerical house" in order.

If you think you might be selling in the next year or two, get ready. Make sure your financial statements and other key records are readily accessible and in good shape.

Check that your leases of equipment and real property are current, and material contracts, franchise agreements, title policies and surveys of real estate holdings are available.

Check your franchise agreements to determine if the manufacturers have rights of first refusal on your dealership. This could greatly influence your sales decisions and negotiations.

Partners and Minority Owners If you have any partners or minority owners (including key executives with stock options), think through the negotiating dynamics.

Now may be the time either to buy them out or to get their contractual authority to negotiate a sale on their behalf as well as your own. Presenting a united front to the potential buyer can go a long way in negotiating the best possible return.

Disposal of Unwanted Assets Central to your pre-sale positioning should be the identification (and, possibly, disposal) of assets a business buyer would not want to use or pay for.

This might include real estate not used for direct business purposes, collectibles, boats or recreational vehicles.

These assets should be identified and, if they are material, you should know how you will get them out of your company with the least adverse tax consequences.

Real Estate In addition to removing nonessential real estate from the business entity, it is important to consider the real estate that is integral to dealership operations.

If the property is owned by a third party, what is the term of the lease? Have you renewal options? Are the rent and other business terms favorable to a potential buyer? Is the lease assignable? And, does the landlord have a right to terminate the lease in connection with a request for his consent to an assignment of it to your buyer?

If the lease is nearing expiration, it may be advantageous to extend the term in advance of starting sale negotiations.

If you hold the property as a personal asset and lease it to the dealership, a long-term lease on terms favorable to you as landlord should be put in place in advance of sales negotiations.

Whether you hold the dealership property personally or in the dealership entity, you must decide whether to sell or retain this asset.

If you sell the real estate, and you take a note for any portion of the transaction price, make sure you are able to take back the property as well as the dealership if the note is not paid. You do not want to be forced to relocate the dealership should ownership of the corporation revert to you.

Tax Consequences Your objective should be to maximize your after-tax proceeds from the sales. The tax consequences of different structures vary enormously as do the risk profiles.

You may prefer a tax-free exchange of your stock for the buyer's publicly traded stock, unless that would leave too many of your economic eggs in one basket.

Get your professional advisors involved early so that the planning and analysis can be substantially done before you are asked to agree to a price which is offered.

Flow and Timing of Negotiations In every buy/sell situation, time is usually on the side of either the buyer or the seller.

Do your strategic planning first so that time is on your side - or at least not working against you.

If your financing is coming up for renewal, renew it first before you have a buyer. If you have a difficult or awkward employee situation to deal with, do so without delay.

If you have hoists which are leaking, fix or replace them. In other words, dress up the pig before you lead it to market.

In addition, be aware that the news of sales discussions is very likely to "leak," so it is important to inform the individuals to whom this knowledge is vital - including key employees who may be tempted to jump ship if they do not have appropriate assurances regarding their future.

Many sellers find it to be in their interest to introduce a special bonus for key employees who stay through the sale.

You should also be wary of a buyer who wants to get you to agree now to a purchase price based on his keeping all the profits you earn during the months between your agreement on price and the actual closing of the deal when you get your money.

Get the Right Help Finally, hire experienced advisors to assist in the transaction, including both an attorney and an accountant familiar with dealership sales and purchases.

Paul Escobosa is a partner in the San Francisco law firm Coblentz, Patch, Duffy & Bass, LLP and counsels businesses on day-to-day operational questions as well as substantial strategic transactions.