There is nothing like the frenzy of a live auction to activate one’s competitive instinct. Interested parties continue to bid because they know that if they don’t, someone else is going to win the prize. And they may be willing to accept conditions that would otherwise be unacceptable in a one-on-one negotiation.

 

Due to the ability to drive up value and increase the certainty of closure, the use of auctions in mergers & acquisitions has increased dramatically. How does it work? Are there factors to consider other than value? Is an auction right for you? 

 

 

In an M&A auction, the selling company hires an investment banker to design and orchestrate the sale process. With the seller’s input, the investment banker prepares a confidential memorandum (“the book”) describing the company, its industry and its financial performance. The style and content of the book is critical to a successful auction process. The investment banker then develops a list of potential buyers, which may include just a few or as many as 250 or more strategic and financial acquirers who are expected to compete for the business through various bidding stages. 

 

Once the universe of buyers is identified, a strategic marketing plan is implemented with a specific timeline. Buyers who have signed a confidentiality agreement and received the book are asked to submit an initial, non-binding indication of interest. From these offers the list is further distilled. Qualified bidders are allowed to review selected due diligence items before submitting a more definitive bid, along with details about financing, timing, and other approvals required to close the deal. Following this second round, the seller usually chooses a single bidder for final, detailed negotiations over a deliberately short period of time, and (hopefully) a successful closing.

 

In our experience, the advantages of a controlled auction process to a business seller include:

 

• Maximize price – the ultimate selling price often exceeds initial valuation expectations by as much as 50%.  

• Negotiating leverage – back-up buyers enable the seller to negotiate terms in the definitive agreement from a position of strength.

• Deal momentum – creates a succinct timetable and a sense of urgency with the buyer.

• Deal certainty – if the first buyer fails to close, a back-up buyer is waiting in the wings.

 

 

We can tell you with great confidence that… it depends. Our objective is to customize a marketing approach that satisfies your personal objectives in a transaction. For example, is your primary objective obtaining the highest price? How important is your company’s post-sale culture to you? Is there sufficient demand among strategic and financial buyers to justify an auction? Do you and your senior management have the fortitude to endure a potentially intense and distracting auction process? 

 

A qualified investment banker can help you ascertain whether or not a full-blown or targeted auction process may be appropriate for your company’s sale. It does not cost you anything other than a few hours of your time to initiate discussions with an investment banker to determine the best sale process for your business.

At GMB Business Advisors, we apply experience gained from closing over 150 lower middle-market transactions with an aggregate value of approximately $1.5 billion.  Our relationships with a broad array of strategic and financial buyers specifically focused in the $5-$30 million market sector help us facilitate efficient transactions that meet the personal objectives of our clients.  

To learn how GMB Business Advisors can unlock the value in your company, please contact Alan Mayer, Managing Director, at 303.592.4844, or Chris Hammond, Director, at 303.592.4820.