26 min
Auction Processes - Get the highest price Middle Market Mergers and Acquisitions by Colonnade Advisors
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- Management
In this episode, Gina Cocking and Jeff Guylay discuss the different types of auction processes we use in a sale transaction, including a negotiated deal, a small process, a targeted auction, and a broad auction.
Gina and Jeff talk about each approach's pros and cons and why Colonnade advises clients on selecting one versus the other, recognizing that each situation is unique and calls for a customized approach to the market.
This episode concludes with a case study of a negotiated process, a broad auction, and a hybrid between a small and targeted auction.
In this episode, Colonnade Advisors addresses the following questions as related to the different types of auction processes:
What are the four primary types of auction processes that Colonnade ues when helping clients sell their business? (01:52)
Gina: "There are four general categories, ranging from the smallest audience to the largest. A negotiated deal involves one bidder. A small auction process generally involves two to five bidders. A targeted auction involves the most likely universe of buyers, ranging from six to 20. Lastly, a broad auction involves contacting a large universe of potential buyers, over 20 parties. There are pros and cons to each of these types of auctions."
What are the advantages of a broad auction? (03:42)
Jeff: "Broad auction is all about market discovery. All four types of auctions involve competition and market discovery, but a broad auction involves unturning every stone, looking under every nook and cranny, and finding that needle in a haystack that you wouldn't have thought about otherwise."
How do we get to the highest value and best outcome with a negotiated auction? (05:14)
Gina: "With a negotiated auction, there is one buyer, so there is the risk of no competition. The buyer could decide to change the price or walk away at any time. One tactic that we use is creating a credible threat. As the seller's advisor, we work in the background on creating materials to go to broader auction, if necessary. That is the credible threat: if the deal has a misstep at any point, the buyer knows that we can immediately go to market and get full market discovery."
Jeff: "Some sellers do not want to go through a broad auction, so they are willing to get a slightly lower price for the benefit of only dealing with one buyer. In addition to pricing, deal momentum and getting a deal done are also critical. "
What are the benefits of running a small process? (08:01)
Gina: "A small process has a lot of the same dynamics as a negotiated auction. One additional advantage with a small process is actual competition, so you can compare bids and push bids up to the highest possible bid of that group. A second advantage is that the seller will have a fallback buyer if the first choice drops out for some reason. Another advantage to a small process is confidentiality. Selling a company is a very revealing exercise because the seller has to tell buyers everything about the company. A negotiated deal and small process limit the risk of who is getting the seller's confidential information."
What types of buyers are generally in a small process and targeted auction? (10:46)
Gina: "In a small process, it tends to be strategics. When there is a smaller universe of potential buyers, it tends to be the ones who really understand the business and are already interested, which are likely to be strategics.
Jeff: "A small process is almost always largely comprised of strategics. There is probably a mix of strategics in a targeted auction, maybe have half a dozen strategics and ten private equity firms. That sort of universe can generate meaningful competition."
What are the trade-offs between a small process and a targeted auction? (11:27)
Jeff: "The workload for a small process and a targeted auction is probably the same, but the seller does lose a little bit of a grip on confidentiality because they are talking to 20 parties instead of two."
What is one of t
In this episode, Gina Cocking and Jeff Guylay discuss the different types of auction processes we use in a sale transaction, including a negotiated deal, a small process, a targeted auction, and a broad auction.
Gina and Jeff talk about each approach's pros and cons and why Colonnade advises clients on selecting one versus the other, recognizing that each situation is unique and calls for a customized approach to the market.
This episode concludes with a case study of a negotiated process, a broad auction, and a hybrid between a small and targeted auction.
In this episode, Colonnade Advisors addresses the following questions as related to the different types of auction processes:
What are the four primary types of auction processes that Colonnade ues when helping clients sell their business? (01:52)
Gina: "There are four general categories, ranging from the smallest audience to the largest. A negotiated deal involves one bidder. A small auction process generally involves two to five bidders. A targeted auction involves the most likely universe of buyers, ranging from six to 20. Lastly, a broad auction involves contacting a large universe of potential buyers, over 20 parties. There are pros and cons to each of these types of auctions."
What are the advantages of a broad auction? (03:42)
Jeff: "Broad auction is all about market discovery. All four types of auctions involve competition and market discovery, but a broad auction involves unturning every stone, looking under every nook and cranny, and finding that needle in a haystack that you wouldn't have thought about otherwise."
How do we get to the highest value and best outcome with a negotiated auction? (05:14)
Gina: "With a negotiated auction, there is one buyer, so there is the risk of no competition. The buyer could decide to change the price or walk away at any time. One tactic that we use is creating a credible threat. As the seller's advisor, we work in the background on creating materials to go to broader auction, if necessary. That is the credible threat: if the deal has a misstep at any point, the buyer knows that we can immediately go to market and get full market discovery."
Jeff: "Some sellers do not want to go through a broad auction, so they are willing to get a slightly lower price for the benefit of only dealing with one buyer. In addition to pricing, deal momentum and getting a deal done are also critical. "
What are the benefits of running a small process? (08:01)
Gina: "A small process has a lot of the same dynamics as a negotiated auction. One additional advantage with a small process is actual competition, so you can compare bids and push bids up to the highest possible bid of that group. A second advantage is that the seller will have a fallback buyer if the first choice drops out for some reason. Another advantage to a small process is confidentiality. Selling a company is a very revealing exercise because the seller has to tell buyers everything about the company. A negotiated deal and small process limit the risk of who is getting the seller's confidential information."
What types of buyers are generally in a small process and targeted auction? (10:46)
Gina: "In a small process, it tends to be strategics. When there is a smaller universe of potential buyers, it tends to be the ones who really understand the business and are already interested, which are likely to be strategics.
Jeff: "A small process is almost always largely comprised of strategics. There is probably a mix of strategics in a targeted auction, maybe have half a dozen strategics and ten private equity firms. That sort of universe can generate meaningful competition."
What are the trade-offs between a small process and a targeted auction? (11:27)
Jeff: "The workload for a small process and a targeted auction is probably the same, but the seller does lose a little bit of a grip on confidentiality because they are talking to 20 parties instead of two."
What is one of t
26 min