Article

Acquisition Alert: Be Smart About IT

Are you in acquisition mode? Dealership IT expert lists the five issues you need to consider now to avoid unexpected headaches and expenses.

June 2017, Auto Dealer Today - Cover Story

by Erik Nachbahr

Every so often, we get a call from a client that goes something like this: “We just closed on a new dealership and want to integrate their IT network and software systems into the rest of our group. How long will it take?”

When I tell them 60 to 90 days, they’re not happy. That is one reason why, if you are acquiring a dealership, you should get your IT team involved early. I realize that the buy/sell process requires a certain degree of discretion, but any employee or vendor worth their salt will keep your information confidential.

Just as there are many decisions to be made related to business operations, there are many decisions to be made when it comes to your IT (for “information technology”) infrastructure. If you want the transition to go smoothly, it’s helpful to have a plan upfront. This typically takes weeks of research, gathering quotes, and documentation.

For example, ordering a new server may take anywhere from two to six weeks. It may take a carrier two weeks to give you a quote for an MPLS connection, which is required to connect the new dealership’s network to your existing data center — never mind an additional few months for the installation.

Getting your tech team involved early is crucial to heading off potential problems such as large licensing violation fees and other unexpected IT-related bills after the close. Without further ado, here are a few questions to ask and items to consider if you are in the process of acquiring a dealership.

1. Licensing

During the acquisition, it’s important to ask for proof of licensing for servers, PCs and all software including Windows, Microsoft Office, Adobe, email systems and more. Not having proof of licensing presents a huge liability. After the deal closes, you could be audited by Microsoft or the Business Software Alliance, resulting in huge fines and other legal penalties.

If the dealership you’re acquiring has 150 to 200 PCs, and none of them have proof of licensing, you will have to foot the bill. Purchasing appropriate licensing for that many PCs could cost you tens of thousands of dollars.

2. Age of Equipment

You will want to get a list of serial numbers for all of your prospective new store’s existing equipment, including PCs, servers, switches and routers. This allows your IT staff to see, among other things, how old the equipment is. It also tells them which items will need to be replaced sooner rather than later — another significant cost many auto dealers don’t take into account during the buy/sell process.

Generally, the useful life for PCs and servers is about five years. For network equipment, it’s seven years. It’s not unusual to discover that one-third to half of all PCs in a dealership need to be replaced, which could add up to a significant chunk of change.

If the seller is reluctant or unable to provide this information, you may want to consider sending an IT person to do a mini-assessment of their equipment. Even a brief, visual inspection of the PCs and server room equipment can give them a good idea of what you’re dealing with.

3. Integration

The first part of the integration equation is your existing dealer group’s network. Is it standardized and built for scalability? If your own network has been patched together with different types and brands of equipment, it’s going to make the integration that much more difficult.

For scalability purposes, make sure all your existing networking equipment is enterprise-grade, and preferably the same brand. In dealerships, it’s not uncommon to see consumer-grade equipment being used because it’s cheaper than the high-end stuff. This is an example of being penny wise and pound foolish. Consumer-grade equipment typically delivers slow performance, and using different brands can result in compatibility issues. This sets the stage for a slow network that crashes a lot. Who wants that?

The second part of the integration equation is connecting the seller’s network to yours. An evaluation of the seller’s carrier bills is a good place to start. New equipment and new connections will likely be necessary. Security, data backup and disaster recovery will also need to be addressed.

4. Contractual Obligations

During the exploratory or negotiation phase of the acquisition, it’s a good idea to review any signed contracts the selling dealership has with DMS, CRM and other technology vendors. Most vendors won’t have a problem making exceptions for a buy/sell, but there may be some legal implications. Finding out early what they might be enables you to factor these costs into your purchase price.

It’s also a good idea to notify the seller’s technology vendors far in advance. It can take anywhere from a few months to a year to transition a dealership to a new DMS. Don’t worry about confidentiality. Again, vendors typically have an established process for buy/sells that includes notifying as few people as possible. The sooner you get started, the better.

5. Phone Systems

Last but not least, there’s the phone system to consider. Do you want the new dealership to tie into your existing phone system? Will their carrier support your system? Does your carrier support their system? At the very least, voice prompts will need to be changed at the appropriate time. Again, vendors and carriers should be notified in advance so they can prepare for the ­transition.

Acquiring a dealership is a big decision that involves big bucks. There’s a lot to consider, from who the new GM will be to the marketing of a new brand, to the smooth transition of employees.

Don’t let the IT infrastructure be an afterthought. Waiting until the last minute can cause downtime, reduced productivity, and employee frustration. It can also result in large costs you weren’t anticipating. Ideally, your IT team will have the full 60 to 90 days to prepare.

Erik Nachbahr is the founder of Helion Automotive Technologies and has expertise in transforming dealer networks into vehicles for mission-critical applications. Email him at [email protected].

Comment

  1. 1. warren miller [ June 19, 2017 @ 07:11PM ]

    Great info Erik! It is also helpful to house your data outside of your DMS. That way, if you are considering selling your dealership, or changing DMS providers, you will have all your data in a non-proprietary format with all the mega-data attached. There are enough challenges with buying/selling a dealership. By utilizing a third-party data archiving and scanning solution, you can save yourself a lot of unnecessary fees and headaches.

 

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