Talk of large consolidators buying collision repair businesses continues todominate the press. But even as large consolidators continue to gobble up smaller regional MSOs many potential sellers face difficulties in completing a sale transaction. In fact, by some estimates, only 10%-20% of private companies that are listed for sale will successfully sell (and some experts predict even numbers as low as 5%). To ensure that your business does not become one of these unsellable companies, here are three proven ways to sell a collision repair business.
Sell to Family and/or Management
Selling to a family member active in the business or an existing management team is often a quick and effective way to sell a collision repair business. Selling to family members active in the business is a good way to ensure that a successful business remains in the hands of a trusted family member, while allowing the seller to monetize the years of work they have put into the business. Not all collision repair businesses have family members active in the business, but often senior managers or veteran employees may have an interest in acquiring the company from an existing owner. This type of transaction is often referred to as an ESOP, or Employee Stock Ownership Plan. The transaction can take place over time through a gradual employee stock ownership transfer or through an immediate transaction. These transactions often involve using bank debt to fund a large chunk of the purchase price paid to the Seller.
The benefit of selling to active family or management is that both parties are deeply involved in the business and inherently understand the operations of the company. Additionally, these types of transactions are often able to be completed confidentially and result in minimal disruption to existing operations. In the collision industry this is important as referral partners and other customers often are uncomfortable with management and ownership changes, and may even require the new owners to re-apply for referral accounts. Transaction advisory fees are also minimized as there is less due diligence and negotiations that involve M&A advisors, attorneys, and real estate professionals.
The flip side to these types of transaction is that they rarely maximize proceeds to the existing owner. Also, because the seller often finances a substantial portion of the transaction, post transaction the seller is still financially involved in the business. This high level of financial concentration has been known to cause post transaction issues where sellers still feel they have a say in the day to day operations of the business.
Selling to family or management is an effective way for an owner to monetize the value they have built over time, but it does require planning and forethought to minimize post transaction difficulties and emotional fall out. Continue reading here.
