RAISING YOUR COMPANYS SALE PRICE WITH A CONTROLLED AUCTION
A companys prospective buyer will usually explain to the seller how he or she calculated its valuation; however, the sellers ability to persuade the buyer that the purchase price should be higher is typically limited.
One of the most effective ways to get a buyer to pay more is demonstrating that other firms want to buy your company too.
When a buyer says, Weve valued your business at $30 million, he or she usually means that $30 million is the low end of the range of feasible prices. Without competition, theres little reason for the buyer to offer to pay more than the ranges bottom figure.
Getting the maximum
One way to generate competition is via a controlled auction. It is one of the best ways to find the buyer who is willing to pay the highest maximum price.
A controlled auction involves getting a number of interested and qualified parties to compete for the right to purchase your company. To create a controlled auction, you must:
1) Identify at least two qualified buyers who want the company.
2) Establish as many terms of the acquisition as possible so that the M&A experts on your team can compare buyers bids. Its not necessary, though, that everything but price be standard, and competing bids may have different terms.
Define the auction procedure you could put all of the buyers in one room, calling out their bids; or keep prospects in different rooms and move from one to another; or buyers could submit their bids electronically. Alternatively, prospective buyers can submit bids through your investment banker, who then will negotiate with each of the bidders.
Making it work
To ensure a controlled auctions success, dont impose too many terms on prospective buyers before youre sure theyre hooked. Let them get interested and then let competition bring the price up.
In addition, make sure buyers are qualified. Nothing is worse than finding out that the winning bidder doesnt really have the financing to back up the bid.