Morgan Stanley’s Brad Stanek: Now Might Be the Time to Exit

RV Business

Brad Stanek

EDITOR’S NOTE: The following is a guest column by Brad Stanek, CFP, a Senior Vice President of The Stanek Group at Morgan Stanley in Chicago.

Despite higher gas prices, inflation, rising interest rates, and recession fears, multiples for successful RV dealerships remain historically high. Although the RV industry still faces a lot of buy-sell activity, buyers are becoming pickier about who they pursue and the terms they offer, since they have a lot more good dealerships to choose from. With many sensing a top of the market, dealers have been asking me if they should pull the trigger now before multiples (and offers) diminish.

As with so many things in life, it depends. Multiples aside, if you’re not emotionally ready to sell, if you haven’t thought through the next chapter of your life and if you don’t have your financials and other key documents in order, you’re not likely to have a successful outcome.

What’s your dealership worth?

First, you must be realistic about what your business is worth to an experienced buyer. Buyers value a business based on the cash flow it generates. Typically, that’s based on a multiple of EBIDTA, which is a proxy for cash flow.

Recent values have been in the 4-5x EBITDA range, meaning that if you have $1 million of EBITDA, a buyer will pay $4 million to $5 million for that stream of cash. Most buyers will try to “normalize” a seller’s EBITDA to determine the value of the business under normal times – not COVID times. Since values have been inching up since the pandemic, buyers have become increasingly selective.

But it’s not all about your financial statements. Here are six other important considerations:

1. Facilities. Personally, I’ve found many buyers look for dealerships with attractive and well-maintained facilities, which can have a significant impact on the customer experience.

2. Real Estate. Real estate typically accounts for half of a dealership’s value. Jesse Stopnitzky, Partner & Director of the RV Division for Performance Brokerage Services told me recently that although many buyers prefer to own the real estate outright, some of the larger dealer groups prefer to lease, preserving the capital for additional acquisitions. He said you need to consider how much acreage is required, the square feet of facility space, and how many service bays are needed. You also should consider whether any capital expenditure investment is required for remodeling and the physical location of the dealership. Is it off the beaten path, or is it near the interstate with visibility?

3. Inventory. This is another important component of your dealership’s value. Buyers pay dealers on their inventory equity, i.e., the inventory value minus the floor plan owed.

4. Lines. Having worked with RV dealers for many years, I’ve found that the lines a dealer carries matter a great deal to buyers. For instance, are they great lines, or are you in an area where a buyer can pull some of their own lines into your location because there’s a territory gap? Also, how much land do you have? If you are on three acres and bursting at the seams, the buyer is not going to be able to turn your inventory any faster than you did. As a result, they’ll feel the revenue potential of your location is capped and that could diminish the offer price.

5. Staffing. Like so many retail businesses today, dealerships are having a hard time finding good employees. If you have a great management team that can run the dealership smoothly in your absence, that’s a huge confidence builder for potential buyers. However, if the management team isn’t strong, or if it’s too dependent on the owner, then the dealership becomes less attractive to buyers, everything else being equal.

6. Room to Grow. Savvy buyers look for strong markets, strong brands, good facilities, and good locations. Finally, they look for room to grow. That’s one way buyers can enhance value. They may pay a little more if they think there’s an opportunity to grow their business after you leave. Since many are looking for growing markets, Stopnitzky said buyers are also looking at the strength of the market in which a dealership operates as well as the dealer’s reputation within the market.

Whether you’re growing your business for the long-term, planning to transfer it, or intending to leave it within the family, you only get one chance to get it right. It may be worth getting a second opinion from experts who focus on RV dealership transactions and ownership transitions.At a bare minimum, a second opinion should tell you:

Where you are today, personally, financially, and business-wise.
Where you want to go.
Gaps that need to be filled to get you to your destination.
How to bridge those gaps.
Time, cost, and expertise needed to bridge those gaps.

Conclusion

Numbers, ratios, and multiples aside, the only “right” time to sell is when it’s the right time for you and your family. That means getting your ducks in a row several years before your planned exit. It also means being crystal clear about how much “walkaway” money you need to have to support your lifestyle post-exit and knowing how you will spend your time when you’re no longer running day-to-day operations.

We’ve helped many of your RV industry peers with what we call the Second Opinion Service (i.e. Total Wealth Analysis). Take a moment to review it and let me know what you think.

Brad Stanek, CFP is a Senior Vice President of The Stanek Group at Morgan Stanley in Chicago, IL [email protected] | 312-648-3381

The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice.

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Source: https://rvbusiness.com/morgan-stanleys-brad-stanek-now-might-be-the-time-to-exit/