Are you considering selling your auto auction company? The auto auction industry is intriguing for many buyers. If you are considering selling, now may be the time to move forward. This review discusses the valuation and sales process.
About The Auto Auction Industry
The auto auction business model involves hosting auctions in which automobiles are sold. The auction company takes a commission for each sale that is made, but they do not own the title for the vehicles at any given time. This leads to minimal risk for the auction and excellent profitability potential. Since auto auctions are often held weekly or bi-weekly, there is demand for auto auction companies among entrepreneurs who desire a less stressful business model with more time away from the office.
How Much is My Auto Auction Company Worth?
As the owner of an auto auction company, you understand the importance of proper valuations. Similar to selling a car at auction, you want to ensure you receive fair market value or higher for your company. There are several methods business brokers use to accurately determine your market value. With the market approach, your broker will use your financial information (SDE, EBITDA, and net sales) and rule of thumb data to formulate a general idea of your company’s value. The rule of thumb data for auto auction companies include:
- Auto auction companies sold between 2.36 and 2.70 times the Seller’s Discretionary Earnings (SDE)
- Auto auction companies sold between 3.10 and 3.87 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
- Auto auction companies sold between 0.31 and 0.35 times the annual net sales. However, some auto auction companies have sold for as much as 0.96 times their net sales.
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What is The Sales Process for Auto Auction Companies?
The sales process may seem complex and intimidating, but you can simplify your sale by breaking the process down into multiple stages. Most notably, the sales process for auto auction companies should include these stages:
- Set goals
- Letter of intent (LOI)
- Due diligence
Below we discuss each stage in greater detail. However, we recommend speaking with a business broker and consultant about the specific steps that are involved for your auto auction company.
Your valuation influences your asking price and how much you can expect prospective buyers to offer. A market-based valuation, in particular, helps ensure you do not sell for below your auto auction company’s worth and helps avoid asking too high a price and subsequently having your business go an extended amount of time without selling. Due to its importance, the valuation is the first step in the sales process. We strongly recommend working with a business broker to determine your company’s value.
#2: Set Goals
You will then need to establish your sales goals. This, of course, includes establishing the price at which you hope to sell. There may be other goals to consider as well. For example, your goals in addition to maximizing your value may include:
- Find a buyer who will operate in a similar manner
- Sale in a manner that minimizes tax obligations
- Sale as quickly as reasonably possible (i.e. for personal reasons)
- Ensure employees and clients are put first
Any documents you have not already gathered should be collected during this third stage in the sales process. Your broker can help you ensure you have all the documents you need. This should include all financial, legal, and organizational documents the buyer may request during due diligence.
Your marketing approach is much different when you sell a business. This is because there is a need for confidentiality; you are not publicly advertising your auto auction company when you sell. Instead, your broker will utilize their private contacts, connections, networks, and databases. Some brokers also utilize blind listings, where the name and location of your auto auction company are not disclosed. This ensures news of your sale is not released sooner than you desire. If necessary, your business broker (and CPA) can help with nondisclosure agreements (NDA) to further ensure private information is not released.
Negotiations are to be expected during the sales process. This is why it helps to have an experienced broker on your side. You and the seller can also establish contingencies for the deal. Your broker can also arrange for confidential meetings to take place when necessary. This usually only occurs when you are close to striking a final deal with a qualified buyer.
#6: Letter of Intent (LOI)
The marketing and negotiation stages should end with a letter of intent (LOI) from a qualified buyer stating their purpose to purchase your auto auction company. The LOI typically includes a description of the business, the purchase price, contingencies, non-compete information, and other important details. In some cases, a closing date is included, although this is usually tentative and may change depending on the due diligence process (see below).
#7: Due Diligence
Your business broker should help the due diligence process go well and help ensure you move to closing as quickly as possible. As discussed, much of the work on your end has already been done before this stage begins, particularly if you took the time to prepare all of your documents. You simply need to provide the seller with the information they need to feel comfortable with the purchase (i.e. tax returns, P&L statements, etc.).
Last but not least, you will have to close the sale. Your broker and attorney can assist you with this process. This may involve preparing certain documents and bringing them to closing. You and your attorney will also review the purchase agreement at the closing table, along with attaining final signatures. The business is also transferred and the payment is made during the closing visit.
Schedule a Free Consultation With Sigma Mergers and Acquisitions
Here at Sigma Mergers and Acquisition, we make the sales process easy. Our job is to assist you through every step of your sales journey, from determining your auto auction company’s value to assisting you with negotiations and ensuring a smooth closing process. We encourage you to schedule a consultation with us today to learn more about the sales process for your auto auction company and to receive a free business valuation.
Scot Cockroft is the Owner & President of the #1 ranked Business Brokerage, Business sales and M&A firm in Texas. Scot has been named Named Deal Maker of the Year by Dallas Business Journal.
He is committed to a “different” type of business brokerage firm, one that is NOT about a sales pitch but, rather, results! In short, a business brokerage firm that is committed to performance-based compensation. Scot believes in these principles as well as a candid honesty with clients. His candid style often takes buyers and sellers by surprise, but is often what assures successful connections between the two.
Feel free to reach out!