We often are approached by sellers who have had contact with a potential buyer. We advise these sellers to enter a controlled auction process and to act as follows:
Do Not:
- Show financials of any kind;
- These need to be reviewed and adjusted by a professional to show accurate performance;
- Show or discuss anything relative to customers, employees, suppliers – these are your special formula’s and should be protected;
- In essence – don’t show them anything at all;
- Speak to anyone other than trusted professional advisors about the contact.
Do:
- Engage a professional to help you determine your willingness to sell at all, what price and terms you should accept, and other options that should be considered;
- If you desire to sell your business enter into a controlled auction process with a qualified transaction specialist that has run this type of process;
Why Enter Controlled Auction Process?
- It let’s buyer’s know they have competition for the business;
- You can take some time to establish your objectives to be sure that a sale is right for you;
- The competitive price will drive the price higher;
- The competitive price will allow you to negotiate better terms;
- You can find hot buttons of each potential buyer and drive your approach to hit them;
- A professional transaction specialist will keep momentum up on the process;
- Momentum is key to a successful transaction;
- You cannot do this on your own and run your business effectively;
- A buyer will expect you to go exclusive at some point. If they do not follow through, as often happens in a single buyer transaction, the seller is left with no other options as the other buyers are gone. It is critical to get to closing if at all possible;
- Negotiations are a nuanced process. It takes specific skills to resolve issues and get to agreement between buyer and seller.
Case Study:
We sold a distribution company recently in which the seller had been approached by a legitimate buyer. He engaged Aspen Grove Investments to conduct a Controlled Auction. We received four bids, two from strategic buyers and two from financial buyers. We were not satisfied with the bids and took the business off the market for a year during which time we prepared and executed an Ownership Transition Plan. We then went back to the market and received bids from one of the original bidders and a new bidder whom we discovered. Neither was a competitor of the seller. We ended up with a sales price that was at least 65% higher than the best of the original bids (there was an earnout involved so it is difficult to determine how much higher it may end up).
Two Keys:
Multiple buyers put buyers on their best behavior. If there is a competitive process in place that is known to buyers, serious buyers will want to put their best foot forward and are more likely to put their best offer on the table as they do not want the seller to get away.
Controlling information so that only qualified buyers are getting information is critical. Controlling when they get that information is equally important. A well-defined controlled auction process will provide both, protecting the seller from unscrupulous or unqualified buyers.