Acquiring or merging with another auto dealership is a complex legal process. However, doing so can also be lucrative. As some auto dealers falter in the current economic climate, successful dealerships become poised to affordably expand and capture a larger market share.
Before taking the leap, familiarize yourself with the applicable Florida laws for auto dealer transactions.
Types of mergers and acquisitions
Florida law requires two merging auto dealers to apply for a merger certificate. They must file articles of merger, a legal document in which the dealership that will survive the merger agrees to receive all assets and liabilities of the other dealership.
The state also recognizes stock acquisitions among Florida corporations. Your company can buy out all the other dealership’s shares to own that dealership. After doing so, your dealership assumes the assets and liabilities of the acquired dealership.
An asset purchase is an acquisition in which your dealership purchases the assets of another dealership. In this case, the buyer can assume some liabilities and must assume those associated with acquired assets.
The legal process
Your dealership will first agree to sign a nondisclosure agreement. During the negotiation process, you will receive information about the other dealership and access valuable intellectual property. With the NDA, you will face legal repercussions if a deal fails and you subsequently disclose nonpublic details about a target company.
However, the NDA does allow you to obtain information about the target company and share it with certain individuals, such as your attorney and financial advisor. During this process, called due diligence, your team should review the following documents from the target dealership:
- Financial records
- Operating procedures
- Business model and core documents
- Asset and debt information
- Intellectual property
The details you receive during due diligence will inform the creation of your letter of intent for the transaction. A letter of intent, sometimes called a term sheet, establishes the proposed terms of the merger or acquisition. This document is not legally binding but does provide the starting point for negotiation and the framework for an eventual contract.