In the last two installments, I wrote about the vast differences in types of auto salvage yards, and the relative lack of buyers in this industry. So just how are yards getting sold these days?
When you know what you’re selling, you have a much better chance of actually closing the deal. I’m amazed that I get calls from owners of up-and-comer yards or from yards just getting by, who don’t know much about the competition, or who will tell me that they made money in the old days, and the new buyer could get back to profitability if they just invested more money into the yard. Yet they want to ask a sales price as if the yard is doing well. They are living in a fantasy if they think they’ll be paid for improvements that the new owners will have to make.
Sellers must be brutally honest in the analysis of their business, and I do nobody any favors by perpetuating a fantasy. Otherwise, we’re just wasting time. The industry has been consolidating for the past twenty years, so that there are fewer yards, but they are getting bigger. It is harder and harder for the mom and pop yards to survive. People have called this the “Wal-Mart effect”, and it shows up in many industries. Some yard owners are joining independently owned networks to enhance their competitiveness in the face of consolidation, such as PRP and Cross Dock. Others are creating their own regional kingdoms. This helps them say “yes” to parts requests.
Once a seller recognizes what type of yard they have, they can determine who the likely buyers might be, and target their sales efforts accordingly. Targeting the chains and regional players is as simple as calling the decision makers at those companies, which is easier said than done, but that is certainly how the right connection is made. Knowing them in advance is a huge advantage.
Targeting individual buyers is quite different because it could be virtually anybody who would want to live within range of your yard. Maybe it is the assistant manager of another salvage yard, a mechanic across town, or just an individual investor who likes cars. How would you reach a few dozen potential individual buyers to give yourself a good chance of finding a capable buyer? Advertising in the industry magazines seems to be the way most yard owners attempt to reach these buyers, and it also helps to have a big mouth, or big ears, or both.
As a business broker, it is essential for me to know who the potential buyers are. The chains all have a growth plan, whether they tell many people about it or not. The regionals would all like their next yard to add to their kingdom, but they tend to be very good about finding their own opportunities. There are hundreds of individuals out there who will say that they’re looking for a yard, but many of them are dreamers with no funding. The legitimate ones are worth getting to know. I consider it a major part of my job to keep track of any capable buyers.
Some of the best potential buyers are actually from allied industries, such as towing and scrap metal companies who value your industrial zoning. I recently sold a yard to a towing company that will increase its territory and can add parts sales to their revenue, which is another way of increasing their odds in this difficult industry.
I’ve sold yards to chains who paid cash, and to individuals who made a down payment and the seller carried a promissory note for the balance. You just want to get enough so that the buyer would have to think long and hard about abandoning their commitment to you. The last thing you want is to take over the yard again down the road.
Many times, I will run across a yard owner who has found a buyer and they are working toward a deal. Some of those deals actually get done, but too many of them fail for reasons that could have been avoided. Valuations need to be appropriate, permitting questions need to be answered in advance, the sales opportunity needs to be described clearly, etc. If there is a decent chance that a yard can be sold, these issues need to be tackled.
To be continued…
George Metos runs GM Consultants, a business brokering agency specializing in representing owners of full-service & self-service auto recyclers, and towing companies. He represents yard owners to dozens of national and regional recycling companies. For several years, he consulted with CRUSH Software, to help them become the standard yard management system for U-Pull-It auto recyclers. He can be reached in Salt Lake City, Utah at 801-953-1003 or GeorgeMetos@aol.com, www.BusinessBrokerGeorge.com