Unless you’ve chosen to negotiate exclusively with a single buyer early on, you will likely be running an auction, where multiple buyers are invited to the table to put an offer on your company.
Taking part in an auction can be an exciting endeavor and the first step to realizing your growth or exit plans. However, you want to make sure you choose the right type of auction for your business.
Auctions can invite a broad group of buyers to the table or be more selective. In this article, we’ll explain the differences between broad and targeted auctions, and the potential pros and cons of each.
Before you consider what type of auction is right for you, think about your goals. Consider what matters most to you and work back to select a buyer that allows you to meet your objectives. Factors to consider could include purchase price, employee retention, customer protection, or any other factors that personally matter to you.
Broad and targeted auctions each have their pros and cons. We encourage you to weigh each option in the context of your desired outcomes.
How it works: Your advisor will approach many dozens or even hundreds of potential buyers that fit broad criteria. They may do their outreach via email, phone call, and potentially even online via direct-investing sites.
- Offers the broadest exposure to the widest variety of buyers including financial, strategic and niche.
- Opportunity to interact with many buyers, including accounts that are not well-known by your advisor.
- Least confidential due to the large number of stakeholders involved, but “blind outreach” and NDAs can help preserve confidentiality.
- Slower sale process due to the volume of buyers that need to be vetted.
- Might be more time consuming for you. For example, you may be leading management presentations and answering questions from a large group of potential buyers.
- If a deal falls through and you need to take the business back to market, a large proportion of potential buyers will know that the initial deal did not work out. This knowledge could color buyer perceptions.
How it works: Your advisor reaches out to a small group of buyers. These buyers are highly targeted toward the preferred outcome of the seller. Your advisor should either know the buyers well or put in the effort to get to know if they would be a good fit.
- Most confidential process.
- Faster sale process as the short list of buyers are likely more familiar with your market.
- May miss out on a good-fit buyer whose characteristics fall outside of your set criteria.
- If your advisor does not have a deep understanding of your goals, they may initially invite the wrong buyers to the table.
- Similarly, if your advisor does not have a deep understanding of the buyer’s criteria, they may target the wrong acquirers.
Choosing an Advisor to Facilitate your Auction
Who you choose to facilitate your auction is just as important as the type of auction you choose. To avoid wasting time, it's important for your advisor to do extensive due diligence on your company and for them to have a deep understanding of your goals before taking the business to market. If your advisor has done sufficient due diligence, buyers will have an accurate understanding of the company’s operations at the earliest stages of the process.