No two succession plans are the same. Four dealers share their plans and stories with Automotive News Canada.
BRUISED FEELINGS AFTER A RIFT
Newfoundland’s O’Neill Group of Companies consists of seven dealerships: three Nissan, one Infiniti, one Jaguar Land Rover, one Volvo and one used-car storefront.
Rick O’Neill started the company with his father and brother about 40 years ago. When his father died 20 years ago, the business transitioned seamlessly to the second generation, with Rick taking on the dealer-principal role and the majority of shares while his brother acquired the rest.
Once it was time to integrate a third generation, though, the situation became complicated.
“We ended up with a very different philosophy of how our children should come into the business,” O’Neill said. “My theory was that they shouldn’t be allowed into the business unless they’ve been educated. They needed to go through university. My brother’s [philosophy] was always that they’re here, they’ve worked it out.”
His brother put his daughter into a position at one of the dealerships, and a situation developed where O’Neill felt obligated to exercise his majority shareholder status to remove her. This created a protracted legal battle and a family rift that still exists.
“That will never go back to what it was,” he said. “They say you should never say never, but I would be shocked if it ever repaired itself.”
O’Neill eventually bought his brother out, and O’Neill’s son is now on track to take over the business. He says that his experiences, good and bad, have better prepared him to set his son up for success.
“If we’d had all those ground rules going in and we would have hit those roadblocks, we could have gone back to the agreement that says here’s how you’ve got to do this.
You can’t supersede the agreement because it was all laid out.”
METICULOUSLY PLANNING A DEAL
Scottsville Auto Group is made up of three dealerships in Alberta: Kipp Scott GMC-CadillacBuick, Gord Scott Nissan and Scott Subaru.
Garrett Scott started the Subaru franchise on his own, and the transition in ownership of the remaining stores from his father is in process.
“How we structured ours was more like a buyout,” he said. “We sat down and figured out where my father wanted to go and how much it was feasible to afford over a 10-year period.
“We estate froze them all at the same spot and sold everything to each other as an asset of 50-50 per person, and then within our unanimous shareholder agreement I’ve got the first right of refusal. That way, my father is accumulating a little bit of money, and so am I to help pay that back down.
“I don’t have the full obligation of the 100 per cent right up front, just so we don’t cripple any possible expansions that we need to do over the course of time.”
Scott has a younger sister. What the family finds works best for their situation is to have her portion of the succession come through real estate.
“My sister has no interest in the car business,” he said. “We ended up just taking operations and separating those from land ownership.
“It’s a value that we all agreed upon, and we do have some pretty large land holdings, so it’s not a small chunk. That gave my dad and my mom peace of mind that, as long as the businesses are still where they are, my sister would have some revenue to generate should she not be working or not having success in her other career. I was fine with that because that kept siblings out of the operations and kept a lot more clarity in our partner agreements and who’s entitled to what.”
DETERMINING WHAT FAMILY MEMBERS DESERVE
Groupe Vincent has three stores based in Shawinigan, Que. — one Hyundai, one Honda and one Mazda — and another Hyundai location in Trois-Rivières.
Group President Maxime Vincent says that both his parents were involved in developing the succession plan for the business as well as his brother, himself and a management company that controls the real estate.
“My role was to determine a new family structure that matched the level of the contributions to the company,” he said (translation from French to English).
“The transaction took more than a year to finalize.”
The challenging part of that was not the administrative side, he said, but that the highly personal nature of it was stressful at times.
“Everyone is different, so everyone brings a different value to the company,” Vincent said. “In my opinion, the percentage of share should reflect the value brought by each individual.
“Obviously, determining each shareholder’s percentage was a challenge where the emotional side often took over. If there is more than one person in the succession plan, it is a top priority to determine the roles, the wishes, and the capability of the passive and active shareholders [and] it is important above all to ensure that all shareholders understand.
“It is a very difficult process, but one that eliminates future frustration and maintains a more united succession.”
BROTHERS AS 50-50 PARTNERS
Hal Somers owns Towne Auto Group, consisting of three dealerships — one Ford, one Chrysler and one Mazda — in Miramichi in northern New Brunswick.
He has two sons in their 30s who are working for the business and are interested in eventually taking over as equal partners. The family’s succession plan is already under way.
“We’ve made application with Ford to have the boys in the succession plan program with them,” Somers said. “It takes between two and five years depending on how well the store does on profitability, market share and customer satisfaction.
“We’ve finished one year and got passed, so hopefully this year will be the second year and [the sons will] be able to buy into the company and start to acquire shares. The rest of the stores will be following suit as soon as we can get the Ford one under our belt.”
Somers has set up a trust that accumulates a percentage of the profits from the business.
“That’s still controlled by me until the time comes for them to actually write a check and take ownership,” he says. “We can set the money aside tax free for now, and then hopefully whenever the time comes the tax laws have changed a little bit more in favour of business owners.
“They will be purchasing the operating company, and I will continue to be a landlord until I pass away. We’ll leave them the properties that way because it’s just a much easier way to do it. For them to go and borrow the money to buy the bricks and mortar and everything, it would be virtually impossible.”
Somers also had each of his children set up a holding company.
“We’ve got it established that the shares will transfer to each of their holding companies,” he said. “That’s how we’ve been able to set up the cash flow into their companies tax-free until the time comes that we actually redeem the shares.”