We often act for clients wanting to buy or sell a business. In many cases these negotiations are conducted between a single buyer and seller.
Where a seller wishes to reach a bigger variety of buyers and generate competition, an auction is often used. We recently acted for a client in the hospitality industry that was interested in buying an on-line business through an auction process run by a corporate finance house.
Auction sales normally happen through a series of bidding rounds during which buyers are selected based on the strength of their offer and whether the seller thinks they will be a good fit. At each bidding round the buyer is provided with additional information about the target to help support their bids.
In an auction there is normally a timetable set by the seller which the potential buyer needs to work within. The potential buyer needs be mindful of the competition from other bidders and to make sure they are asking the right questions in the due diligence process. The seller will hold greater negotiating power in an auction so it is essential to outperform the other bidders in terms of the efficiency and clarity of the bid. It’s also important the potential buyer doesn’t over value the business they want to buy just because there is pressure from other bidders being involved.
Acting for the potential buyer at the auction we had to assist our client with the following steps:
Review the objectives, risks, terms and requirements of the bid process letter to be able to advise our client on the auction and bid process.
Negotiate a non-disclosure agreement to ensure our client would have access to the due diligence information they asked for and needed to put their bid together.
Review the information provided by the seller in the data room and help the client establish what further questions they needed to ask.
Draft the bid terms for our client to try to secure the purchase of the business.
On a successful bid at auction we would then negotiate the sale and purchase agreement and other transaction documents to complete the purchase of the business.
As a serious bidder in such a process it is important to be seen to be asking the right questions and be positioned to meet the often-demanding timetable of the seller. The professionalism of how the process is handled is as important as the bid itself. Sellers will often remove perspective buyers who they believe to be a waste of time.
A well organised bidding phase should result in a smooth onward negotiation and closure of transaction documents.
If you think you might benefit from our help with buying a company, please get in touch.