SM2 Advisors was contacted by the trusted advisor of a client who was pursuing the purchase of a multi-franchise domestic auto dealership in the Northern U.S. The client was acting as an angel investor, backing a relative who was the main operator of the dealership for the past 5+ years for an absentee owner.

At the time SM2 was introduced to the deal, the operator and owner had discussed a sale and the owner had presented the operator with an outline of a proposed deal along with supporting documents. The proposed deal was a convoluted buyout based on highly inflated values and was to take place over a 20 year period. The structure heavily favored the seller.

Once engaged, SM2 immediately procured both the services of a professional business valuation firm that specialized in the auto dealership industry, and a real estate appraiser. The valuations confirmed SM2’s suspicion that the enterprise and its real estate were vastly overvalued by the owner.

Subsequent discussions between SM2 and the owner were unsuccessful in the short term in reaching an agreement on price in terms, primarily due to the owners unrealistic price expectations. After discussion with the client and the operator, SM2 began inquiring about purchasing other comparable dealerships in the hopes of finding a realistic seller and made numerous contacts in regards to same.

After a brief hiatus, the seller returned to the negotiating table with more realistic terms and eventually a deal was struck at a price that was less than half of the original offer. Once the terms of the buy/sell were agreed to, SM2 worked with the angel and the operator to structure an operating agreement that would properly incentivize the operator for performance while also repaying the angel for his initial investment.