Britain Auto Group in Georgia has sued the former owner of Casey Jackson Ford, alleging it was misled into overpaying millions for the dealership, underscoring the importance of due diligence during dealership acquisitions.
The details: The lawsuit claims former owner Casey Jackson provided misleading financial documents that included profits from a prefabricated-home business that was not part of the dealership sale, according to Ford Authority.
Britain Auto Group paid $6.5 million for Casey Jackson Ford in 2022, believing the dealership generated roughly $160,000 in monthly profit.
The store’s $7 million asking price was reportedly based on annual earnings of about $2 million, or roughly 3.5 times earnings.
Britain alleges actual dealership profits were well below $1 million between 2018 and 2020 once income tied to the prefabricated-home business was excluded.
According to the lawsuit, Britain “has generated significantly less revenue than the figures reflected in the financial statements” provided during the sale process, prompting claims of fraud and breach of contractual warranties as the auto group seeks damages and recovery of the difference between the purchase price and the dealership’s alleged actual value.
Jackson denies the allegations.
What they’re saying: “The transaction at issue was negotiated between sophisticated parties represented by experienced legal and accounting professionals. The parties themselves discussed the tiny house business," he said in a statement, per Ford Authority. "The financial information provided during the sale process disclosed the existence of additional income categorized as ‘other income,’ and the related tiny house business was specifically identified in the transaction documents as an excluded asset not included in the sale.”
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Why it matters: The lawsuit highlights the financial and operational risks tied to dealership buy-sell transactions, particularly as consolidation activity remains active across the industry, emphasizing the importance of thoroughly vetting financial statements, revenue sources, and excluded assets before closing a deal.
Between the lines: Jamie Farley, a partner at Performance Brokerage Services, highlighted two key due diligence priorities in an Up To Speed report.
After signing a letter of intent, buyers should conduct a comprehensive review of the dealership’s financials, contracts and operations.
Farley also stressed the importance of working with experienced buy-sell advisors to identify and address potential issues early in the process.
Bottom line: As dealership valuations remain elevated, buy-sell transactions carry growing financial stakes. Thorough due diligence and clear disclosure around all revenue streams can be critical to avoiding costly disputes after a deal closes.
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