Two techniques:

  • Limited or controlled auction (a “handful” of candidates selected);
  • Open auction (open to the world).

Limited auctions can be completed quicker and the threat of an open auction can be used to keep bids up.

Open auctions can threaten the business, but the release of information can be controlled.

A controlled auction process is a type of sales process where one or a small number of potential buyers submit purchase offers for an acquisition target. An open auction consists of many parties bidding for a business simultaneously. Controlled auctions are differentiated in that the process unfolds in a carefully planned sequence designed to build and maintain a strong negotiating position. In a controlled auction, the opportunity is presented to a select group of qualified buyers in a manner that stimulates a competitive market.

A controlled auction process is a time-tested method to maximize value when selling a business. The primary objective of a controlled auction is to generate the best possible cash purchase price. However, in addition to price and deal structure another important aspect of the controlled auction process is the ability to manage the deal terms with the use of a seller-friendly sale and purchase agreement.

The two most important keys to a successful controlled auction process include:

  • Fully understanding what the seller’s objectives are; and
  • Having the ability to maintain strict control over the process.

Excerpt taken from Conquering M&A by James Dow available to purchase from Amazon here.