Auto Salvage Industry Business Broker – Part 6

From my last installment, you know that you’re making real progress if you’ve received a term sheet or “Letter of Intent” from a prospective buyer for your yard.

It is now time to test your negotiating chops. You have a buyer who could potentially be very sincere now, and rejecting any of their deal points requires some tact and skill. It is very easy at this point to send the potential buyer running away from the deal by being unreasonable or failing to give on issues of little consequence. But you have some negotiating strength, and should be rewarded fairly. After all, the buyer has made a significant move by making you a written offer.

As in buying a house, there is a period of inspection prior to closing. We call this the due diligence period. In auto salvage, there are some very important issues to be evaluated during the due diligence process. These are real estate and utility inspections, environmental analysis, demographic and competitive analyses, zoning and permitting, car buying issues, company leadership, etc. This is in addition to your due diligence in confirming that the buyer has the financial strength to close. Environmental and permitting issues are vital in this business, so work hard to resolve them.

There is a tendency for sellers to get complacent and relax during due diligence. They let down their guard, at their peril. They might not believe that they must continue to buy good inventory, or take on the difficult employee or customers issues, etc. They might figure that they’re selling the yard and they can let the buyer handle these issues, so they start their retirement early. And the owner may not even realize he/she is less intense, because it happens slowly.

You’ll need to motivate yourself to press onward. Deals in this industry inevitably take longer than expected to close, and there is always a chance that it does not close at all. If you’ve diminished the value of your business, and it does not sell, then you may have a hard time motivating yourself again. Continuing the hard work for the final mile is the best way to make the time pass by quickly, while maintaining the value of your yard. Don’t let the buyer sense an opportunity to trim the price.

The operators whom I respect the most are the ones who continue to innovate after a term sheet is signed, even knowing that they might sell soon. They continue to make smart decisions that will drive sales and profit, regardless of whether they end up selling or not. If the deal closes, they may be able to increase the purchase price, or at least have the comfort of knowing that they left the yard in great shape for the buyer. If the deal does not close, then you can see how this hard working and positive attitude will be to your benefit. These individuals amaze me, and I develop a deep respect for them forever. We need more of them, in all walks of life.

During the due diligence, the final purchase agreements are being drawn up by the attorneys. It is a big undertaking to ensure that the real estate and business asset deals are properly described, including any issues pertaining to the environment, employees, customers, equipment, liabilities, non-competition, tax implications, etc.

So many deals fail in this phase. This is when an objectionable issue may be discovered, or the buyer gets cold feet about their financial situation. But with proper preparation, you have considered the gotchas and are prepared. It sometimes seems like a nervous phase, but eventually papers are signed and money is transferred. I’ve been through it myself in another industry and can attest that it is an anxious time.

This is your biggest deal as a salvage operator, and it is finally done. Yes, it is more complex than selling parts, a car, or even a house. But in many ways, it is similar and you can get through it. You turn over the keys at closing and get ready for your next adventure, whatever that might be.

Thank you all for your calls and emails. Many of you have had good suggestions regarding issues to address in this six-part article published in Recycler’s Power Source the last half of the year. Feel free to suggest other topics that may be of interest to you for future articles.

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