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7 Questions to Ask Before Hiring a Dealership Broker
Hiring a dealership broker is one of the few decisions in a sale that you make before any buyer is involved. Get it right and the rest of the process has a solid base. Get it wrong and you can lose months, money and leverage you cannot win back.
Firms that describe themselves as auto dealership M&A advisors, MD Johnson among them, will tell you how they work. Your job is to ask the questions that reveal whether that matches what you need. Here are seven to bring to every meeting.
1. Who do you represent?
Some brokers work only for sellers. Others represent buyers too, sometimes in the same market. Ask directly. A dealership broker who also earns from buyers has a reason to close fast rather than close well. MD Johnson, for reference, describes its work as exclusive sell-side advisory.
2. How do you get paid, and when?
Ask about every part of the fee:
- Is there a retainer or monthly charge?
- Is the fee paid only at closing?
- Is the fee charged on one side only?
- Will you bill me for expenses?
MD Johnson says it charges on one side only, paid at closing, only by its client, with "no retainers ever." Use that kind of structure as a yardstick when reading proposals.
3. How will you value my store?
Listen for specifics. A credible answer mentions at least three years of financial statements, adjustments for non-recurring and owner-specific expenses, real estate value against rent expense, brand and market conditions. If the broker gives you a blue sky number before seeing your statements, be careful.
The most expensive mistake is hiring the broker with the biggest number. An inflated valuation wins the listing, then collapses under a buyer's diligence. MD Johnson says it "will NOT give you a pie-in-the-sky number just to sign an engagement agreement." That is the right standard for anyone.
4. Who will see my information, and how do you protect it?
Ask how buyers are qualified, when NDAs are signed and how documents are shared. Ask how they will keep the process quiet from your staff, customers and competitors. A leak can cost you key employees before a deal is even signed.
5. What does your process look like from start to finish?
A clear answer walks through valuation, a confidential Memorandum of Sale, buyer outreach, Letters of Intent, the Asset Purchase Agreement, due diligence, factory submission and closing. Ask who does each step, and how the broker works with your attorney and CPA rather than around them.
6. Who handles the real estate?
Most dealership sales involve property, whether it is sell with MD Johnson sold, leased or kept by the seller. Some brokers bring in a separate real estate agent with a separate fee. MD Johnson says its subsidiary MDJ Realty handles the real estate part of the buy-sell at no additional cost. Either way, know who is responsible before you sign.
7. What is in the engagement agreement?
Read it with your attorney. Focus on:
- Term: how long you are committed.
- Tail period: how long the broker can claim a fee after the agreement ends, and for which buyers.
- Exit: what happens if the broker does not perform.
A broad tail clause can follow you long after the relationship is over.
This is general information, not legal advice.
A bonus question
Ask about a deal that did not close. A good dealership broker can explain what went wrong and what they learned. A broker who claims every deal is perfect is telling you something too.
Putting it together: choosing your dealership broker
Ask all seven questions to at least two or three candidates. Write the answers down and compare them with your CPA. For general industry context while you do, the National Automobile Dealers Association is a useful background source.
The right broker will not mind the questions. They will expect them.