Do you want to sell an auto repair service center? There is demand among auto enthusiasts and investors for established auto service centers. This guide discusses how to sell for fair market value and is designed for auto repair shop owners who are planning their exit strategy.
About The Auto Service Industry
The auto service industry is large with excellent sustainability moving forward. Auto repair service centers are full-service providers and offer mechanical services, electrical services, engine repair and replacement, and ongoing maintenance for a range of vehicle types, although some may choose to specialize in certain vehicle types (i.e. luxury vehicles, commercial vehicles, etc.). Here is the most recent industry data:
- There are approximately 288,000 auto repair service centers in the U.S.
- There was a 1.9% annual growth for the auto repair industry from 2018 to 2023
- The auto repair industry generates $78.4 billion in annual revenue
- The annual profit for the auto repair industry is $4.9 billion
- Experts predict a sizable increase in annual growth (1.3%) from 2023 to 2028
There will always be demand for auto repair service centers, especially within the next five years as more drivers are expected to purchase used vehicles rather than new ones. For car lovers who enjoy working on vehicles and being their own boss, this is a great investment with excellent profit potential.
How to Value an Auto Repair Service Center
Business brokers begin the valuation process with an analysis of your financial information. For exit strategies, they will use a market-based approach to determine your fair market value. To do so, they calculate your earnings before interest, taxes, depreciation, and amortization (EBITDA) and the seller’s discretionary earnings (SDE). This information is then used with rule of thumb data. The rule of thumb data for the auto repair industry is as follows:
- Auto repair service centers sold between 2.21 and 3.82 times the Seller’s Discretionary Earnings (SDE)
- Auto repair service centers sold between 2.77 and 3.95 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA). Some centers with net sales greater than $5 million received EBITDA multiples as high as 8.75.
- Auto repair service centers sold between 0.37 and 0.57 times the annual net sales
Other factors of course matter as well, such as your location, growth potential, workforce quality, and local reputation. Your reason for selling may also factor into your final adjusted valuation as well.
The Sales Process: A Step-by-Step Guide
The sales process for auto repair service centers does not have to be complicated or overly complex. However, ensuring a successful and efficient sale requires proper planning and an understanding of the process. The most common steps include:
- Market-based business valuation
- Sale preparation
- Marketing and negotiations
- Due diligence map
- The purchase agreement (closing)
Your business broker should be there to guide you throughout the sale. Keep in mind, no two sales are the same. You may face complexities beyond what you can predict. Be sure to remain patient and trust the experts in your corner (broker, attorney, CPA, etc.) to help you along the way.
#1: Market-Based Business Valuation
Business brokers recommend a market-based business valuation for owners who are planning their exit strategy. This valuation method provides an idea of your company’s worth on the open market, also known as your fair market value (FMV). This value determines your strategy, including the asking price and when you list your company.
#2: Sale Preparation
Next, you will need to prepare for the sale. You should not skip this step as a failure to prepare could lead to a stressful experience. Notably, you will need to prepare your company’s tax returns (at least three years), profit and loss statements, balance sheets, cash flow statements, insurance information, list of equipment, lease information (or appraisal if you own real estate), employee lists, and a list of long-term customers. Additional documents may be useful as well. Your broker can help you prepare for the sale process.
#3: Marketing and Negotiations
Your marketing approach when selling your auto repair service center is different than other types of marketing. Rather than increasing your exposure and making your business public as you would do in other types of sales, you should sell your auto repair service center in a confidential manner. This means only utilizing private channels to find a buyer, such as confidential networks, connections, and databases. This is why it is important to work with a broker, particularly one who has contacts within your industry and is able to market and advertise your service center in a confidential manner.
Your broker will also screen the offers as they arrive and notify you about the details for each one. The goal is to find the buyer that allows you to best reach your goals. Your broker, along with your input, will also negotiate with potential buyers throughout the process as well.
#4: Due Diligence Map
A due diligence map is a process to ensure the due diligence stage remains on track and is completed within a certain timeframe. This map also ensures any important steps are not skipped, which benefits the buyer as well as the seller. Otherwise, the due diligence stage can continue for an extended amount of time and increase the likelihood of complications with every passing day. Your due diligence map should outline the timeframe for each step of the process. Notably, this may include:
- The buyer reviews requested financial, legal, and organizational documents
- The seller answers any questions the buyer has about the auto repair service center
- The buyer conducts a walk-through of the facility and meets with certain members of the company
Keep in mind, this is an example of the types of tasks that may be outlined with your due diligence map, and your process may look different depending on the specifics of your auto repair service center.
#5: The Purchase Agreement (Closing)
Lastly, you and the seller will review and sign the purchase agreement. Your attorney (and the seller’s attorney) may attend the closing as well. In some cases, the broker of the deal may attend to ensure all goes well, although their physical presence is not always necessary. A representative of the buyer’s financial institution may attend as well, particularly if the buyer is financing the deal. The seller can expect to transfer ownership of the company during closing. This may involve updating license information, insurance policies, etc. The seller may also notify all employees and customers of the ownership change.
Schedule a Consultation With Sigma Mergers and Acquisitions
Here at Sigma Mergers and Acquisitions, we pride ourselves on helping business owners sell their companies for optimal value and complete their exit strategy. We are here to answer any questions you have, and we can provide you with a free, no-obligation business valuation during a consultation call.
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!