Dealer Conversations: Making deals during COVID-19
Aug 23, 2020
By: Mark W. Ayers
Is it just me, or does March sometimes seem like it was over a year ago ? The coronavirus has made just about everything more difficult. But we are resilient people. My wife and I are experiencing firsthand the additional challenges of selling and then building a house this year. Some of the challenges that we are facing are similar, although certainly on a much smaller scale, to what everyone buying and selling businesses is experiencing: virtual meetings to negotiate contracts instead of in-person, questions over vendor supply issues and how that will impact the transaction, reviewing and signing documents electronically, and questions about whether the buyer or seller will be able to fulfill their obligations as a result of unforeseen issues that might lie ahead.
I was talking with a broker who sells dealerships, and she’s still doing closings in person, although some of the consultants involved are participating remotely. One of the biggest changes that she’s seen is that you need to get out ahead of potential delays because parts inventory count companies and floor plan lenders might not be able to do the counts when you want them to be based on staffing issues or personnel crossing state lines who have to quarantine. Other challenges can be caused by governmental entities that might not be as accessible as they normally would be. For example, there were delays in getting a dealer license in one case because the Department of Motor Vehicles wasn’t open. Her advice is to plan ahead by mapping out all of the players you will need to work with and looking at whether some need to be contacted sooner than in the past to coordinate the close. She also advises having language in your purchase and sales agreement that allow extensions to the close date if there are delays in financing and factory approvals that are caused by the coronavirus.
One of my associates who works with dealerships in the Midwest said that in two recent deals where he represented the buyer, the transactions were done 100% remotely from their office. They arranged for both the buyer and seller to accept the floor plan lender’s counts of new and used vehicles, and then all support for other assets purchased were scanned to them and they built the settlement statements from the information provided and had virtual meeting with the buyer, seller and attorneys to review the closing statements.
There can also be issues related to PPP loan forgiveness. Dealers selling their assets should get their forgiveness applications in before closing. If the dealership is planning on applying for a period beyond the eight-week covered period, but before the 24 weeks is up, their employees would all be terminated, likely triggering a wage reduction forgiveness cutback. Even if using an eight-week covered period, it’s best to get the forgiveness application in before the close.
In these uncertain times, it’s best to anticipate as much as you can when putting together your purchase and sales agreement and planning your close. Contact us for assistance.
We’re also here to help you navigate the uncertainty of the COVID-19 pandemic and its impact on your people, finances and business. We have developed a library of resources in our COVID-19 resource center to help you stabilize today and prepare for tomorrow.