Many auto parts and accessories retail stores are selling at or above fair market value due to excellent industry demand. This guide is designed to provide insights on how to value your company, the sales process, and how a business broker helps ensure a stress-free and successful exit strategy.
About The Auto Parts and Accessories Retail Industry
According to Business Reference Guide, the auto parts and accessories industry can be broken into three categories. The first are automotive supply stores that primarily engage in retailing new and used automotive parts and accessories. The second type engages in repairing automobiles as well as selling parts and accessories. Lastly, this industry includes companies who both retail and install automotive accessories. The industry has performed well and is expected to growth. The industry numbers include:
- There are approximately 68,000 auto parts and accessories retail stores in the U.S.
- There was a 1.8% annual growth for the auto parts and accessories industry from 2018 to 2023
- The auto parts and accessories industry generates $73.6 billion in annual revenue
- The annual profit for the auto parts and accessories industry is $6.5 billion
- Experts predict a sizable increase in annual growth (1.3%) from 2023 to 2028
eCommerce sales have changed the way many retail stores within the industry operate, focusing more on digital marketing approaches and online sales. Despite a changing industry in terms of operation, the growth projections remain stable and similar to pre-pandemic levels. The used car industry is expected to rise and fewer Americans are expected to purchase new vehicles, which could lead to increased demand for parts and accessories purchases from retail stores.
Market-Based Business Valuation for Auto Parts and Accessories Retail Store
A market-based business valuation includes the use of your company’s financial information, such as your discretionary earnings (SDE) and earnings before interest, taxes, depreciation, and amortization (EBITDA). This financial data is multiplied by the industry multiples, also known as rule of thumb data. Notably, this data includes:
- Auto parts and accessories retail stores sold between 2.73 and 3.28 times the Seller’s Discretionary Earnings (SDE)
- Auto parts and accessories retail stores sold between 3.10 and 4.34 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
- Auto parts and accessories retail stores sold between 0.40 and 0.53 times the annual net sales
Keep in mind, the valuation for your auto parts and accessories retail store is dependent on a variety of factors, many of which do not show up on financial reports. Although the rule of thumb data provides a starting point for your valuation, your broker should also consider your geographic location, the quality of your workforce and machinery, your growth potential, and your reason for selling, among other factors that a buyer may consider important.
A Step-by-Step Guide to Selling an Auto Parts and Accessories Retail Store
Every auto parts and accessories retail store owner will have a unique exit strategy experience. However, there are common steps that you can expect. As discussed, you will first determine the value of your company. This gives you an idea about when and for how much you sell. The additional steps after your valuation include:
- Plan your exit strategy
- Find the right buyer
- Complete Due Diligence
- Sign The Purchase Agreement
This process notably involves marketing your business in a confidential manner, having the buyer that is best for your company’s future sign a letter of intent (LOI), and signing the purchase agreement during closing. Here is a closer look at each step:
Plan Your Exit Strategy
Once you receive your valuation, you will need to decide if and when you sell your company. Not every company should seek a buyer immediately. For example, if you are not happy with your valuation, it may be best to continue improving business operations, keep better financial records, and improve your marketing strategy so that your valuation increases before you sell. In other instances, it may be best to sell as soon as possible, particularly if your valuation allows you to reach your exit strategy goals.
Find The Right Buyer
Once you decide to bring your auto parts and accessories retail store to the market, your business broker will leverage private networks, databases, and connections to find a buyer in a manner that maintains the confidentiality of the sale. It is strongly recommended to not seek a buyer on your own or in a manner that discloses news of an imminent sale. This could disrupt business operations, cause concern among employees and customers, and subsequently influence your value. This step should end with a signed letter of intent (LOI).
Due diligence is the stage in the sale when the buyer who has signed a letter of intent closely analyzes and investigates your business, verifies important financial details and documents, and conducts a walk-through of your auto parts and accessories retail store. In some cases, they may also meet with high-level employees who they intend to keep on board. Your job as the seller is to provide all documents quickly to ensure a fast process and avoid unnecessary setbacks. Of course, your broker and attorney are there to help you with the due diligence stage.
Sign The Purchase Agreement
Finally, you will attend the closing table and finish the sales process. At the closing table, you and your attorney will review the necessary documents, discuss the purchase details with the buyer, transfer ownership of your retail store, and confirm that the payment is sent. After the sale closes, employees and customers are notified, and the business is fully transferred, you are able to start your next journey, whether it is starting a new business, retirement, or another life plan.
Sigma Mergers and Acquisitions Helps Businesses Sale for Fair Market Value
Contact the business brokerage and consultancy team at Sigma Mergers and Acquisitions today for more information about how to sell an auto parts and accessories retail store. We are happy to provide you with a free business valuation and answer any questions or concerns you have related to your valuation or long-term company strategy and exit plan.
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!