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Critical Issues When Purchasing a Dealership

The last 12 months have been an active time for Buyers and Sellers of automobile dealerships. In my experience of representing almost 50 dealers buying or selling a dealership, I have noticed that most deals boil down to a few critical issues. Hiring an attorney to guide you through these issues and the best way to structure the deal is very important. The following items are some of the main issues you should consider when purchasing a dealership:

  • Purchasing Assets or Stock/LLC Interests
Purchasing assets is usually always better for a Buyer because the Buyer gets to depreciate the purchased assets (excluding land) based on the purchase price. If the Buyer purchases stock/LLC interests, then the Buyer takes the Seller’s basis in those assets which has usually been fully depreciated.
Also, if the Buyer purchases assets, the Buyer only assumes those liabilities of Seller that the Buyer specifically assumes in the purchase agreement. If the Buyer purchases stock/LLC interests, the Buyer assumes all of the Seller’s liabilities known and unknown. Even with a very good indemnification from Seller, that is very risky.
  • Purchase Price
Determine what the Buyer is going to pay for goodwill or bluesky of the dealership. Most Buyers use a multiple of earnings depending on the type of manufacturer and the location of the dealership. The Buyer will also need to set a price or formula for determining the purchase price of other dealership assets, like demonstrators, used cars, parts and accessories, fixed assets, special tools and equipment.
  • Due Diligence
As a Buyer are you going to be given a chance to inspect the books and records of the dealership, inspect the assets you are purchasing, and inspect the building that you may be purchasing or leasing? The Buyer should request strong representations and warranties from the Seller that Seller owns all of the assets used in the operation of the dealership and that the assets are in good working order, normal wear and tear excepted.
  • Purchase or Lease the Land and Building
Is Buyer going to purchase the land and building from the Seller? If so, Buyer will need to review the title to the property, possibly get a survey or updated survey, order a Phase I and possibly a Phase II Environmental Site Assessment, and have a mechanical engineer inspect the building and material components, like the roof and HVAC system.
Is Buyer going to lease the land and building? What is the primary term? Does the Buyer want renewal options? What is the monthly rent? What are the rent increases during the primary term or renewal terms? What is Buyer responsible for under the lease? Most leases are “triple net” meaning the tenant is responsible for the taxes, insurance and maintenance of the building.
  • Indemnifications
Indemnifications are important to protect both the Buyer and the Seller. A Buyer wants as many representations and warranties as possible from Seller and wants the indemnity period to last as long as possible. A Seller wants as few representations and warranties as possible and wants as short an indemnity period as possible.
  • Employees
Buyer is not obligated to hire any of Seller’s employees under an asset purchase. A Buyer may hire only those former employees of Seller that Buyer wants to hire. Those employees are the Buyer’s new employees and will be on Buyer’s employee benefit plans. Part of Buyer’s due diligence should be to review the current compensation of Seller’s employees.
  • Right of First Refusal
Most Manufacturers have a right of first refusal in the Dealer Sales and Service Agreement. Once the Purchase Agreement is signed by Buyer and Seller and submitted to the manufacturer for approval, the manufacturer will usually have a period of time where it can purchase the dealership on the same terms and conditions. It doesn’t happen very often but as a Buyer it is something you have to consider.
  • Manufacturer Approval
Once the purchase agreement is signed and submitted to the manufacturer for approval, the Buyer will need to submit business and personal financial information to the manufacturer. Also, the Buyer will have to submit an Application for a Dealer License to the Louisiana Motor Vehicle Commission (“LMVC”). Typically ever deal is contingent upon manufacturer and LMVC approval before the Buyer and Seller can close the deal. 

Critical Issues When Purchasing a Dealership

The last 12 months have been an active time for Buyers and Sellers of automobile dealerships. In my experience of representing almost 50 dealers buying or selling a dealership, I have noticed that most deals boil down to a few critical issues. Hiring an attorney to guide you through these issues and the best way to structure the deal is very important. The following items are some of the main issues you should consider when purchasing a dealership:

  • Purchasing Assets or Stock/LLC Interests
Purchasing assets is usually always better for a Buyer because the Buyer gets to depreciate the purchased assets (excluding land) based on the purchase price. If the Buyer purchases stock/LLC interests, then the Buyer takes the Seller’s basis in those assets which has usually been fully depreciated.
Also, if the Buyer purchases assets, the Buyer only assumes those liabilities of Seller that the Buyer specifically assumes in the purchase agreement. If the Buyer purchases stock/LLC interests, the Buyer assumes all of the Seller’s liabilities known and unknown. Even with a very good indemnification from Seller, that is very risky.
  • Purchase Price
Determine what the Buyer is going to pay for goodwill or bluesky of the dealership. Most Buyers use a multiple of earnings depending on the type of manufacturer and the location of the dealership. The Buyer will also need to set a price or formula for determining the purchase price of other dealership assets, like demonstrators, used cars, parts and accessories, fixed assets, special tools and equipment.
  • Due Diligence
As a Buyer are you going to be given a chance to inspect the books and records of the dealership, inspect the assets you are purchasing, and inspect the building that you may be purchasing or leasing? The Buyer should request strong representations and warranties from the Seller that Seller owns all of the assets used in the operation of the dealership and that the assets are in good working order, normal wear and tear excepted.
  • Purchase or Lease the Land and Building
Is Buyer going to purchase the land and building from the Seller? If so, Buyer will need to review the title to the property, possibly get a survey or updated survey, order a Phase I and possibly a Phase II Environmental Site Assessment, and have a mechanical engineer inspect the building and material components, like the roof and HVAC system.
Is Buyer going to lease the land and building? What is the primary term? Does the Buyer want renewal options? What is the monthly rent? What are the rent increases during the primary term or renewal terms? What is Buyer responsible for under the lease? Most leases are “triple net” meaning the tenant is responsible for the taxes, insurance and maintenance of the building.
  • Indemnifications
Indemnifications are important to protect both the Buyer and the Seller. A Buyer wants as many representations and warranties as possible from Seller and wants the indemnity period to last as long as possible. A Seller wants as few representations and warranties as possible and wants as short an indemnity period as possible.
  • Employees
Buyer is not obligated to hire any of Seller’s employees under an asset purchase. A Buyer may hire only those former employees of Seller that Buyer wants to hire. Those employees are the Buyer’s new employees and will be on Buyer’s employee benefit plans. Part of Buyer’s due diligence should be to review the current compensation of Seller’s employees.
  • Right of First Refusal
Most Manufacturers have a right of first refusal in the Dealer Sales and Service Agreement. Once the Purchase Agreement is signed by Buyer and Seller and submitted to the manufacturer for approval, the manufacturer will usually have a period of time where it can purchase the dealership on the same terms and conditions. It doesn’t happen very often but as a Buyer it is something you have to consider.
  • Manufacturer Approval
Once the purchase agreement is signed and submitted to the manufacturer for approval, the Buyer will need to submit business and personal financial information to the manufacturer. Also, the Buyer will have to submit an Application for a Dealer License to the Louisiana Motor Vehicle Commission (“LMVC”). Typically ever deal is contingent upon manufacturer and LMVC approval before the Buyer and Seller can close the deal. 

Critical Issues When Purchasing a Dealership

The last 12 months have been an active time for Buyers and Sellers of automobile dealerships. In my experience of representing almost 50 dealers buying or selling a dealership, I have noticed that most deals boil down to a few critical issues. Hiring an attorney to guide you through these issues and the best way to structure the deal is very important. The following items are some of the main issues you should consider when purchasing a dealership:

  • Purchasing Assets or Stock/LLC Interests
Purchasing assets is usually always better for a Buyer because the Buyer gets to depreciate the purchased assets (excluding land) based on the purchase price. If the Buyer purchases stock/LLC interests, then the Buyer takes the Seller’s basis in those assets which has usually been fully depreciated.
Also, if the Buyer purchases assets, the Buyer only assumes those liabilities of Seller that the Buyer specifically assumes in the purchase agreement. If the Buyer purchases stock/LLC interests, the Buyer assumes all of the Seller’s liabilities known and unknown. Even with a very good indemnification from Seller, that is very risky.
  • Purchase Price
Determine what the Buyer is going to pay for goodwill or bluesky of the dealership. Most Buyers use a multiple of earnings depending on the type of manufacturer and the location of the dealership. The Buyer will also need to set a price or formula for determining the purchase price of other dealership assets, like demonstrators, used cars, parts and accessories, fixed assets, special tools and equipment.
  • Due Diligence
As a Buyer are you going to be given a chance to inspect the books and records of the dealership, inspect the assets you are purchasing, and inspect the building that you may be purchasing or leasing? The Buyer should request strong representations and warranties from the Seller that Seller owns all of the assets used in the operation of the dealership and that the assets are in good working order, normal wear and tear excepted.
  • Purchase or Lease the Land and Building
Is Buyer going to purchase the land and building from the Seller? If so, Buyer will need to review the title to the property, possibly get a survey or updated survey, order a Phase I and possibly a Phase II Environmental Site Assessment, and have a mechanical engineer inspect the building and material components, like the roof and HVAC system.
Is Buyer going to lease the land and building? What is the primary term? Does the Buyer want renewal options? What is the monthly rent? What are the rent increases during the primary term or renewal terms? What is Buyer responsible for under the lease? Most leases are “triple net” meaning the tenant is responsible for the taxes, insurance and maintenance of the building.
  • Indemnifications
Indemnifications are important to protect both the Buyer and the Seller. A Buyer wants as many representations and warranties as possible from Seller and wants the indemnity period to last as long as possible. A Seller wants as few representations and warranties as possible and wants as short an indemnity period as possible.
  • Employees
Buyer is not obligated to hire any of Seller’s employees under an asset purchase. A Buyer may hire only those former employees of Seller that Buyer wants to hire. Those employees are the Buyer’s new employees and will be on Buyer’s employee benefit plans. Part of Buyer’s due diligence should be to review the current compensation of Seller’s employees.
  • Right of First Refusal
Most Manufacturers have a right of first refusal in the Dealer Sales and Service Agreement. Once the Purchase Agreement is signed by Buyer and Seller and submitted to the manufacturer for approval, the manufacturer will usually have a period of time where it can purchase the dealership on the same terms and conditions. It doesn’t happen very often but as a Buyer it is something you have to consider.
  • Manufacturer Approval
Once the purchase agreement is signed and submitted to the manufacturer for approval, the Buyer will need to submit business and personal financial information to the manufacturer. Also, the Buyer will have to submit an Application for a Dealer License to the Louisiana Motor Vehicle Commission (“LMVC”). Typically ever deal is contingent upon manufacturer and LMVC approval before the Buyer and Seller can close the deal. 

Critical Issues When Purchasing a Dealership

The last 12 months have been an active time for Buyers and Sellers of automobile dealerships. In my experience of representing almost 50 dealers buying or selling a dealership, I have noticed that most deals boil down to a few critical issues. Hiring an attorney to guide you through these issues and the best way to structure the deal is very important. The following items are some of the main issues you should consider when purchasing a dealership:

  • Purchasing Assets or Stock/LLC Interests
Purchasing assets is usually always better for a Buyer because the Buyer gets to depreciate the purchased assets (excluding land) based on the purchase price. If the Buyer purchases stock/LLC interests, then the Buyer takes the Seller’s basis in those assets which has usually been fully depreciated.
Also, if the Buyer purchases assets, the Buyer only assumes those liabilities of Seller that the Buyer specifically assumes in the purchase agreement. If the Buyer purchases stock/LLC interests, the Buyer assumes all of the Seller’s liabilities known and unknown. Even with a very good indemnification from Seller, that is very risky.
  • Purchase Price
Determine what the Buyer is going to pay for goodwill or bluesky of the dealership. Most Buyers use a multiple of earnings depending on the type of manufacturer and the location of the dealership. The Buyer will also need to set a price or formula for determining the purchase price of other dealership assets, like demonstrators, used cars, parts and accessories, fixed assets, special tools and equipment.
  • Due Diligence
As a Buyer are you going to be given a chance to inspect the books and records of the dealership, inspect the assets you are purchasing, and inspect the building that you may be purchasing or leasing? The Buyer should request strong representations and warranties from the Seller that Seller owns all of the assets used in the operation of the dealership and that the assets are in good working order, normal wear and tear excepted.
  • Purchase or Lease the Land and Building
Is Buyer going to purchase the land and building from the Seller? If so, Buyer will need to review the title to the property, possibly get a survey or updated survey, order a Phase I and possibly a Phase II Environmental Site Assessment, and have a mechanical engineer inspect the building and material components, like the roof and HVAC system.
Is Buyer going to lease the land and building? What is the primary term? Does the Buyer want renewal options? What is the monthly rent? What are the rent increases during the primary term or renewal terms? What is Buyer responsible for under the lease? Most leases are “triple net” meaning the tenant is responsible for the taxes, insurance and maintenance of the building.
  • Indemnifications
Indemnifications are important to protect both the Buyer and the Seller. A Buyer wants as many representations and warranties as possible from Seller and wants the indemnity period to last as long as possible. A Seller wants as few representations and warranties as possible and wants as short an indemnity period as possible.
  • Employees
Buyer is not obligated to hire any of Seller’s employees under an asset purchase. A Buyer may hire only those former employees of Seller that Buyer wants to hire. Those employees are the Buyer’s new employees and will be on Buyer’s employee benefit plans. Part of Buyer’s due diligence should be to review the current compensation of Seller’s employees.
  • Right of First Refusal
Most Manufacturers have a right of first refusal in the Dealer Sales and Service Agreement. Once the Purchase Agreement is signed by Buyer and Seller and submitted to the manufacturer for approval, the manufacturer will usually have a period of time where it can purchase the dealership on the same terms and conditions. It doesn’t happen very often but as a Buyer it is something you have to consider.
  • Manufacturer Approval
Once the purchase agreement is signed and submitted to the manufacturer for approval, the Buyer will need to submit business and personal financial information to the manufacturer. Also, the Buyer will have to submit an Application for a Dealer License to the Louisiana Motor Vehicle Commission (“LMVC”). Typically ever deal is contingent upon manufacturer and LMVC approval before the Buyer and Seller can close the deal. 

Critical Issues When Purchasing a Dealership

The last 12 months have been an active time for Buyers and Sellers of automobile dealerships. In my experience of representing almost 50 dealers buying or selling a dealership, I have noticed that most deals boil down to a few critical issues. Hiring an attorney to guide you through these issues and the best way to structure the deal is very important. The following items are some of the main issues you should consider when purchasing a dealership:

  • Purchasing Assets or Stock/LLC Interests
Purchasing assets is usually always better for a Buyer because the Buyer gets to depreciate the purchased assets (excluding land) based on the purchase price. If the Buyer purchases stock/LLC interests, then the Buyer takes the Seller’s basis in those assets which has usually been fully depreciated.
Also, if the Buyer purchases assets, the Buyer only assumes those liabilities of Seller that the Buyer specifically assumes in the purchase agreement. If the Buyer purchases stock/LLC interests, the Buyer assumes all of the Seller’s liabilities known and unknown. Even with a very good indemnification from Seller, that is very risky.
  • Purchase Price
Determine what the Buyer is going to pay for goodwill or bluesky of the dealership. Most Buyers use a multiple of earnings depending on the type of manufacturer and the location of the dealership. The Buyer will also need to set a price or formula for determining the purchase price of other dealership assets, like demonstrators, used cars, parts and accessories, fixed assets, special tools and equipment.
  • Due Diligence
As a Buyer are you going to be given a chance to inspect the books and records of the dealership, inspect the assets you are purchasing, and inspect the building that you may be purchasing or leasing? The Buyer should request strong representations and warranties from the Seller that Seller owns all of the assets used in the operation of the dealership and that the assets are in good working order, normal wear and tear excepted.
  • Purchase or Lease the Land and Building
Is Buyer going to purchase the land and building from the Seller? If so, Buyer will need to review the title to the property, possibly get a survey or updated survey, order a Phase I and possibly a Phase II Environmental Site Assessment, and have a mechanical engineer inspect the building and material components, like the roof and HVAC system.
Is Buyer going to lease the land and building? What is the primary term? Does the Buyer want renewal options? What is the monthly rent? What are the rent increases during the primary term or renewal terms? What is Buyer responsible for under the lease? Most leases are “triple net” meaning the tenant is responsible for the taxes, insurance and maintenance of the building.
  • Indemnifications
Indemnifications are important to protect both the Buyer and the Seller. A Buyer wants as many representations and warranties as possible from Seller and wants the indemnity period to last as long as possible. A Seller wants as few representations and warranties as possible and wants as short an indemnity period as possible.
  • Employees
Buyer is not obligated to hire any of Seller’s employees under an asset purchase. A Buyer may hire only those former employees of Seller that Buyer wants to hire. Those employees are the Buyer’s new employees and will be on Buyer’s employee benefit plans. Part of Buyer’s due diligence should be to review the current compensation of Seller’s employees.
  • Right of First Refusal
Most Manufacturers have a right of first refusal in the Dealer Sales and Service Agreement. Once the Purchase Agreement is signed by Buyer and Seller and submitted to the manufacturer for approval, the manufacturer will usually have a period of time where it can purchase the dealership on the same terms and conditions. It doesn’t happen very often but as a Buyer it is something you have to consider.
  • Manufacturer Approval
Once the purchase agreement is signed and submitted to the manufacturer for approval, the Buyer will need to submit business and personal financial information to the manufacturer. Also, the Buyer will have to submit an Application for a Dealer License to the Louisiana Motor Vehicle Commission (“LMVC”). Typically ever deal is contingent upon manufacturer and LMVC approval before the Buyer and Seller can close the deal. 

Critical Issues When Purchasing a Dealership

The last 12 months have been an active time for Buyers and Sellers of automobile dealerships. In my experience of representing almost 50 dealers buying or selling a dealership, I have noticed that most deals boil down to a few critical issues. Hiring an attorney to guide you through these issues and the best way to structure the deal is very important. The following items are some of the main issues you should consider when purchasing a dealership:

  • Purchasing Assets or Stock/LLC Interests
Purchasing assets is usually always better for a Buyer because the Buyer gets to depreciate the purchased assets (excluding land) based on the purchase price. If the Buyer purchases stock/LLC interests, then the Buyer takes the Seller’s basis in those assets which has usually been fully depreciated.
Also, if the Buyer purchases assets, the Buyer only assumes those liabilities of Seller that the Buyer specifically assumes in the purchase agreement. If the Buyer purchases stock/LLC interests, the Buyer assumes all of the Seller’s liabilities known and unknown. Even with a very good indemnification from Seller, that is very risky.
  • Purchase Price
Determine what the Buyer is going to pay for goodwill or bluesky of the dealership. Most Buyers use a multiple of earnings depending on the type of manufacturer and the location of the dealership. The Buyer will also need to set a price or formula for determining the purchase price of other dealership assets, like demonstrators, used cars, parts and accessories, fixed assets, special tools and equipment.
  • Due Diligence
As a Buyer are you going to be given a chance to inspect the books and records of the dealership, inspect the assets you are purchasing, and inspect the building that you may be purchasing or leasing? The Buyer should request strong representations and warranties from the Seller that Seller owns all of the assets used in the operation of the dealership and that the assets are in good working order, normal wear and tear excepted.
  • Purchase or Lease the Land and Building
Is Buyer going to purchase the land and building from the Seller? If so, Buyer will need to review the title to the property, possibly get a survey or updated survey, order a Phase I and possibly a Phase II Environmental Site Assessment, and have a mechanical engineer inspect the building and material components, like the roof and HVAC system.
Is Buyer going to lease the land and building? What is the primary term? Does the Buyer want renewal options? What is the monthly rent? What are the rent increases during the primary term or renewal terms? What is Buyer responsible for under the lease? Most leases are “triple net” meaning the tenant is responsible for the taxes, insurance and maintenance of the building.
  • Indemnifications
Indemnifications are important to protect both the Buyer and the Seller. A Buyer wants as many representations and warranties as possible from Seller and wants the indemnity period to last as long as possible. A Seller wants as few representations and warranties as possible and wants as short an indemnity period as possible.
  • Employees
Buyer is not obligated to hire any of Seller’s employees under an asset purchase. A Buyer may hire only those former employees of Seller that Buyer wants to hire. Those employees are the Buyer’s new employees and will be on Buyer’s employee benefit plans. Part of Buyer’s due diligence should be to review the current compensation of Seller’s employees.
  • Right of First Refusal
Most Manufacturers have a right of first refusal in the Dealer Sales and Service Agreement. Once the Purchase Agreement is signed by Buyer and Seller and submitted to the manufacturer for approval, the manufacturer will usually have a period of time where it can purchase the dealership on the same terms and conditions. It doesn’t happen very often but as a Buyer it is something you have to consider.
  • Manufacturer Approval
Once the purchase agreement is signed and submitted to the manufacturer for approval, the Buyer will need to submit business and personal financial information to the manufacturer. Also, the Buyer will have to submit an Application for a Dealer License to the Louisiana Motor Vehicle Commission (“LMVC”). Typically ever deal is contingent upon manufacturer and LMVC approval before the Buyer and Seller can close the deal. 
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