THE ROLE OF A CPA IN A BUY SELL IS EXPANDING ALONG WITH DEAL COMPLEXITY

• CPAs are wearing more hats during the buy sell process
• Larger auto groups mean more complex deals
• Is there such a thing as being too specialized?

A Certified Public Accountant has long been a critical component in the buy sell process. The skills a CPA brings to the table have not changed much over the years. What has changed is the size of the dealership groups involved and thus the complexity of the transactions.

That means CPAs find themselves adding value to buy sell transactions in increasingly varied ways, they tell Getting to Go!

“The biggest thing that has changed is the dealers themselves,” says Lewis Fisher, a CPA and principal handling automotive and dealer services at accounting firm Baker Tilly USA. Fisher was previously with Moss Adams; it recently merged with Baker Tilly.

Fisher has been working with dealer groups for more than two decades. When he started, dealership ownership was more diversified, he says. Groups tended to be smaller, and many were family-owned.

Now, as the retail automotive industry consolidates, groups are growing ever larger and, while many are still family-owned, they are now bringing in outside investors.

Real estate holdings have gotten larger and dealership groups are often part of larger corporate structures now, Fisher says. That makes for more complicated transactions.

“The planning needs have grown much more complex,” he says. “There’s pieces of the puzzle that require more of our time.”

For example, he says, a dealer group that previously had three or four stores may now have 15. When thinking about succession planning for the much larger group, that requires a different skill set. “Who’s going to run 15 stores versus two or three?” Fisher says.

Estate planning also changes with a larger estate with a higher value. It now involves considering both the tax standpoint and the operational standpoint.

“I don’t think the touchpoints are completely different for (CPAs), Fisher says, “But I do think there’s more complexity to it because it’s a bigger operation (with) more moving pieces, and there’s more strategy that has to go into that.”

For example, if the selling group has multiple Toyota franchises as well as other brands, there is a good chance one of the manufacturers – likely Toyota -- will exercise Right of First Refusal, Fisher says. So, the deal needs to be structured with a backup plan to keep it moving.

A CPA should have a scenario ready to go that considers the tax and cash flow issues, Fisher says. “I think that’s a good example of where the CPA should be involved,” he says.

The argument for specialists vs. generalists

The Moss Adams/Baker Tilly merger is emblematic of a trend in the accounting world: fewer but larger firms.

Fisher argues that is a positive trend. As dealership groups also grow larger, they require CPAs with different knowledge and skill sets, he argues.

Say a dealership group based in Nevada is acquiring stores in various states. The group has to abide by multiple state and local jurisdictions with different tax and other rules.

“Maybe a local jurisdiction, like the City of Los Angeles, would have a gross receipts tax,” Fisher says. “If you have a generalist who was with you back in the day in Nevada, that generalist probably is not going to be conversant about the gross receipts tax in Los Angeles.”

A large firm, however, will have a state and local tax person who is fully aware of the LA tax laws, Fisher says. “That’s going to be a game changer.”

Ever-larger accounting firms also have negative aspects for dealership groups, counters Stuart McCallum, founder and president of McCallum & Company, an advisory and accounting firm.

“I would gladly wear a hat that says ‘Make Accounting Boring Again,’” he says.

A dealer he recently spoke with pined for accountants that would worry about his business, not growing their own firm, McCallum says.

To be sure, as accounting firms grow, they have specialists for every aspect of the dealership business, he says. But dealers often want to talk to one person who is knowledgeable in multiple accounting aspects and how they apply to the retail automotive industry.

Though a dealership group may have over a billion in revenue, the organization tends to be very flat, McCallum says. Dealership groups don’t have full C-Suites.

“They have, like, a (Chief Financial Officer), maybe they have a (Chief Operating Officer), maybe they have a corporate controller. But they don’t have a centralized headquarters with three to four hundred people in it like a comparably sized manufacturing or tech company,” he says.

So, the dealership’s CPA or accounting firm is likely talking with the group’s owner or CFO, McCallum says. “But they’re not talking to the head of financial reporting.”

That owner or CFO wants to talk with a CPA who is conversational in all aspects of a dealership’s business because “dealers like to move fast,” McCallum says.

At the same time, McCallum acknowledges, the issues a CPA addresses are getting more complex as dealership groups expand.

“A big dealership group when I (began working in retail auto) had five stores 20 years ago. Back then, their floor plan was $5 million. Now, that is not the case.”

Dealership accountants’ “level of sophistication has to increase,” McCallum says. At the same time, “You have to be dedicated to the industry 100%.”

A lot of car guys

At Rosenfield and Co., an accounting firm with offices in New York, New Jersey and Florida, his team has created decks, done ROI analysis, completed manufacturer applications, done due diligence, prepared closing statements electronically, and moved the opening balance sheet into the DMS system, founding partner Ken Rosenfield tells Getting to Go!

“Not to mention cost segregation studies on the buildings and improvements,” he adds.

The services his firm provides during a buy sell closing haven’t changed much in the last ten years, Rosenfield says. But it has always provided services many accounting firms do not, such as location studies, he says.

“A lot of the things that seem new, we have been doing them a long time,” Rosenfield says.

One thing that has changed: Skyrocketing valuations have altered how the price is allocated in a buy sell.

“So, if you’re paying hundreds of millions of dollars for the dealership, how much goes to goodwill, how much goes to fixed assets and the like? We do line analysis to make sure it works and look at market share impact,” Rosenfield says.

Due diligence reports are also getting “stronger,” Adam Rosenfield, Ken’s son and a firm partner, says. Dealerships “are having us do deeper dives.”

That can pay off. Rosenfield and Co. once discovered a seller was committing fraud, he says.

Small and mid-sized groups are asking the firm to be involved with a buy sell transaction from the get-go, Adam Rosenfield says. “Typically, larger groups just want us to come in at the end.”

The firm has helped brokers create decks and provided data as well as putting together banking packages, Ken Rosenfield says.

“I think what differentiates our firm is we have a lot of car guys,” he says. “They understand the entire range of nuances in the industry.”