A Confidential Limited Auction Can Sell Your Business Fast

A confidential limited auction can sell your business fast – and for a higher price

Jan 04, 2018

Have you ever been to an auction? The sense of urgency to the entire process makes one decide immediately if there is interest or not; there’s a set timeline to act or miss out. And more important, it’s not a time for buyers to low-ball the price. Recognizing that other parties are involved creates opportunities for sellers to get a higher price and better terms. However, not all businesses can or should participate in a limited auction. A business must be perceived as very desirable to multiple buyers at the same time. If a limited auction is right for you, here’s what you should know.

The Process:

Your M&A partner will create the auction and maintain confidentiality throughout the process. This advisor will prepare a confidential offering memorandum describing your business, attract a group of interested buyers with a teaser, vet them and have parties execute NDA’s, all with a deadline in effect. The structure for the next steps vary with Q&A, indications of interest (IOI), conference calls and meetings.  Establishing a set timeline for each step is important. Once IOI’s come in, your M&A advisor will work with you to assess the different options of price and terms. Then a higher counter is usually made back to several of the top buyers who submitted IOI’s. It’s eventually whittled down to one buyer with a letter of intent (LOI) negotiated to be signed.

Each situation will have different nuances, but that’s the basic framework. Some business owners are concerned that a limited auction might interrupt their business or lead to employees and clients finding out. But when done right, a limited auction is very confidential, minimally disruptive, increases demand, and can make your selling price jump.

The Competition:

When multiple buyers are all vying for the same business, the situation shifts – and sellers have the advantage. When buyers compete in auction environments, we see two trends:

  • Buyers bring their A game. When there’s competition, buyers tend to be more aggressive. That means they’ll often lead with a higher price and more cash than they might have offered otherwise. Typically, auctions draw multiple offers at the same time and the price goes up and sellers decide with which buyer they want to move forward.
  • Different buyers see the company differently. What’s of tremendous value to one buyer might not be that important to another. The auction helps your M&A advisor find the offer that solves a problem for you and your business. 

The Urgency:

The defined timeline of an auction creates pressure for buyers. Unlike traditional sales, they don’t have time to draw out the due diligence or extended rounds of negotiation.

The auction environment requires buyers to have their act together. The clock is ticking, so buyers are incentivized to pay more, create favorable terms for the seller, and do whatever it takes to present the best possible offer.

There’s a reason why sellers are often approached directly in hopes of bypassing the auction. Buyers know that an auction can increase the sales price and mean more favorable terms for the seller. The reasons that buyers would like to avoid auctions are the same reasons that sellers should consider the auction environment.

Auctions also tend to keep folks honest. When there are several buyers competing for a business, they all know that any misstep or misrepresentation can make them lose the deal.

When managed correctly, auctions can create competition and a sense of urgency among buyers. O’Keeffe & O’Malley has guided many clients through this process, and we’d like the opportunity to explain it and help you analyze your options. If you’re interested in selling your business, call us at 913-648-1085 for a confidential meeting.