In parts 1-4 of this article, we discussed the various types of salvage yards, the kind of buyers who are likely to be interested, and how to begin the process of valuing and selling the business. Let’s now illustrate how to get a commitment from the buyer.
A buyer must be interested in both the real estate and the business in order to proceed, although some rare buyers have been known to buy a business and move it. Opinions regarding the real estate can be formed once the buyer sees the facility and does some research on its value.
Smart sellers make sure the yard is in good shape for an inspection, and if repairs are going to be made anyway, they may as well get them done now. The buyer will envision physical changes to the yard to fit their model, and the associated costs to make those changes. Either they like that vision and proceed, or they will fade away.
The buyer will examine the business separately from the real estate, wanting to know how you’re currently operating, and how that might be different from their own model. Maybe they will want to build upon your business, make changes, or they may have entirely different business plans. Some operators buy $1,000 cars, some buy $3,000 cars. Those operators dismantle differently and sell to a different That’s only one type of difference. The prospective buyer will be thinking of this and much more.
Showing them the appropriate information that helps them with that vision is key. They may be shopping for yards, so if you delay, other sellers may not, and the sale is lost. If the information is not believable, or is delivered as a jumble of papers, or delivered a piece at a time, you can lose the sale that way too.
The financial information must be provided carefully and professionally. They’ve signed a confidentiality agreement by now, but it still requires mutual trust to proceed. There are many buyers who don’t get financial information from me even with a signed confidentiality agreement because I did not perceive them as sincere. Or maybe they were not financially capable of buying, so why bother giving out additional private information?
Sometimes sellers are reluctant to disclose their financial information if the business is not doing well. In my experience, it is better to disclose and count on the buyer’s confidence in their own skills to make the business profitable. A confident buyer is a good buyer. Telling a prospective buyer that you do not have financials available sends a very bad signal, and your honesty may come into question. Of course the deal is then lost.
Remember from earlier parts of this article that I believe we have a major shortage of buyers in the automotive salvage industry. There is a lot of consolidation in this industry, but not many players doing the actual consolidating. There are hundreds of full-service auto salvage yards going away annually, so the supply is there. Not every yard sells, so we have to be sharp to get a deal done.
One of the most successful methods that I’ve found in selling yards is to listen carefully for buyers who are in the market and capable. There are plenty of talkers, but qualified candidates are in short supply. I stay in touch with the good ones and try to make a match when the opportunity arises. They are usually people who have a successful yard already, and don’t need to be sold on the industry. They just need to see the right opportunity. Capable first time buyers are out there too, but need more time to get comfortable.
Have your information laid out in advance, and anticipate every question that you can. Always give consistent and honest answers and be able to prove the value.
Have you ever worked on buying a salvage car or engine, but the more you got to know the seller, the less you wanted to buy that car or engine? If that was because the seller did not provide consistent, honest answers, and prove the value of the item, then you can see why you didn’t want to deal with this person. You would not want to be that type of seller now. Not for your biggest salvage deal ever. Prepare for this, just like you have at anything else that took some hard work.
You’ll know that you’re making tangible progress when you receive a term sheet or Letter of Intent that informally lays out the deal. You will want your attorney’s input at this point so that you don’t sign anything that you might regret. It will usually be non-binding, so that the parties can continue their evaluation before signing final documents.
See final installment next month…
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