A structured auction process can be used to sell a business in a competitive bidding environment. Managed well by experienced advisors, this method of sale can be an effective way to crystallise buyer interest and drive a premium outcome.
On the other side of the coin, a more rigid timeline may exclude certain bidders, increase the risk of ‘market chatter’, or even damage the value of a business if a transaction is not completed. Let’s explore each in more detail.
Advantages of a structured auction
A well-prepared business supports momentum in the sale process, which increases the deliverability of the transaction and reduces ‘process drift’. Selling a business is time-consuming, as well as stressful, so a structured auction can help to control timing and workload.
A structured auction process enables competitive tension, allowing multiple potential buyers to run along a single timeline. This has the potential to be a major driver of value, as buyers understand, if they do not buy an asset, another bidder will.
Comparability of multiple offers allows the seller to take advantage of varied options. A structured auction process can deliver multiple offers, including from different investor types – be that private equity or trade buyers – who are able to offer different deal structures. Price is not always the only element to consider for a seller – and is often less important than anticipated.
At Clearwater, we work with sellers to explore the varied forms of transaction open to them – and many select a different opportunity than the one initially anticipated. So, optionality is key.
With the advantages and disadvantages of a structured auctions process in mind, picking the right adviser is critical.
Why picking the right adviser is critical
With these advantages and disadvantages in mind, picking the right adviser is critical. On the upside of a transaction, advisors can get the best result for a seller, increasing the chances of a deal being signed. They can create the right deal, at the right price, with the right party. Clearwater’s ambition on each and every transaction is to outperform the prevailing market conditions, and we have an unrivalled track record of doing so.
Alternatively, the right adviser will be able to mitigate the damage of the process going awry, including, crucially, advising when not to proceed to market.
Disadvantages of a structured action
Of course, there are also potential downsides.
A structured auction process can reduce flexibility (as once the train has left the station, it’s harder to stop). This may negatively impact on the participation of some of the most valuable potential buyers. Some may have differing strategic priorities or timeframes, both of which may not fit with the proposed auction timelines.
This is particularly true for strategic buyers with their own businesses and priorities to manage. Ultimately this loss of flexibility could be damaging to the value that can be achieved.
An auction process can also create the sentiment that a business is being sold – rather than being bought. It is clear a seller is choosing to market a business ahead of a sale, rather than it being of sufficient strategic value that a buyer makes a pre-emptive acquisition. This can give a different perspective on the perceived value of a business when compared to an ‘off-market’ or ‘bilateral’ sale.
A structured auction can attract several potential acquirers, which in turn means more advisors, accountants and external consultants. This can increase the potential for leaks of sensitive information and general ‘market chatter’. This may be damaging to both the business and sale process but equally is something the right adviser can help to limit.
Last, but not least, there is a potential for a ‘failed process’. If a business is marketed for sale, but does not complete a transaction, this may have damaging connotations, regardless of underlying strength of the asset. This outcome also typically creates a time lag before a business can be brought back to market.
Knowledge
We don't hide behind jargon and complexity. Instead, we aim to open up the black box of M&A, illuminating the path with clear insight, simplifying the process, and delivering valuable information.
Knowledge
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