Going…going…GONE! Selling a Company or Assets via Auction
Clients often ask us if they should consider selling their company (or certain assets) in an auction or through individual negotiations. Depends.
Both have advantages and disadvantages. Let’s look at some of these:
Structure of Auction Deals
Auctions can be structured in multiple ways: open (like on ebay: bidders know the price and/or identity of other bidders) or closed (the participants receive little information about identity or prices). They can be limited by rounds of bidding, by time (again – like ebay) or can run its course until every other bidder drops out (your typical Sotheby’s auction). Which structure is chosen depends on the circumstances.
Auctions provide speed of execution and come to a definite outcome without dragging on. The seller may or may not like the outcome, but an outcome there is. Auctions are often used where the transacted asset can be well defined, the proposed deal is straight-forward, and the only significant open variable is the price.
More complex transactions are usually negotiated on a one-on-one basis. The complexities may include questions on payment terms, earn-out provisions, representations or warranties by the seller, or – in the case of joint ventures – issues concerning control and additional buy-sell agreements. These transactions should still include a competitive environment with multiple suitors, but the process is far from the more formal character of an auction. Last but not least, individually negotiated transactions place a higher burden on senior management, the board, and investors.
Trends for Selling a Company or Assets
We expect to see an increase in auction-type transactions in the current market environment: the speed of execution, reduced management burden, and straight-forward process lend themselves to restructuring plans where companies are capitalizing assets or investors are selling companies and are looking for a quick exit.
Gunther Hofmann is a Vice President of The Brenner Group and has done extensive work in valuations, M&A, venture capital, and corporate finance with significant international experience in small firms as well as global corporations. Gunther earned a Masters Degree in Electrical Engineering and Business Administration from Darmstadt University of Technology in Germany, and was a Visiting Scholar at UC Berkeley. He is a holder of the Chartered Financial Analyst designation, and a member of the National Association of Certified Valuation Analysts. Gunther is Chairman of the Software/IT Industry Group of the German American Business Association (GABA).
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Entry filed under: Financial Advisory.