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Acquiring a Dealership? Five IT Issues to Consider.

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

When I tell them 60 to 90 days, sometimes they’re not happy. Which is one reason why, if you are acquiring a dealership, you should get your IT team involved early. I realize that many times the buy/sell process is discreet but any employee or vendor worth their salt will keep the 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 Information Technology (IT) infrastructure. If you want the technology transition to go smoothly, it’s helpful to have a plan up front. 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 a quote for an MPLS connection, which is something that’s required to connect the new dealership’s network to your existing data center; never mind an additional few months for the installation.

Another reason to get your IT team involved early is to prevent 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 other 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. To purchase appropriate licensing for that many PCs could add up to tens of thousands of dollars.

2) Age of equipment

Another thing you’ll want to get is a list of serial numbers for all of the seller’s existing equipment including PCs, servers, switches and routers. This allows your IT staff to see, among other things, how old the equipment is. This lets you know which items will need to be replaced sooner rather than later–another significant cost that many dealerships 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 one-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 detailed 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? By that I mean, if your own network has been patched together with different types and brands of equipment, it’s going to make the integration of a new system that much more difficult.

For scalability purposes, make sure that all your existing networking equipment is enterprise grade and preferably the same brand (we recommend Cisco). In dealerships it’s still 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 results in 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 back up, 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. The earlier you find out what they are 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, and/or 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 that you weren’t anticipating. Ideally your IT team will have 60 to 90 days to prepare.