Unlike a more conventional sale by private treaty, the controlled auction process involves the seller seeking competing bids for the target company or business. It is imperative that the seller is fully prepared for the controlled auction. A much higher level of preparation is required when compared with a standard bilateral sale.
The seller first needs to construct a team and delegate responsibilities. In all instances the team will comprise lawyers, accountants and an investment bank or other financial adviser. The seller must subsequently carry out an assessment of the likely bidders and consider any potential encumbrances that may affect the sale.
Furthermore, the information memorandum has to be created during the preparatory stages. Essentially a selling document, its purpose is to provide the bidders with an adequate amount of information pertaining to the target. Amongst other things, the memorandum can include the targetÂs principal assets, its financial situation and relevant details of employees, customers and contracts. This should consequently induce sincere offers from interested parties. Â
Regarding the disclosure exercise, additional documentation such as the sellerÂs due diligence reports and independent third party reports will normally be furnished to the bidders. Disclosing sensitive agreements or litigation claims however, can be slightly problematic. The seller may have to redact certain parts of a contract or alternatively, produce a summary of the agreement. Â With respect to actual and/or threatened lawsuits, an oral presentation as opposed to a written report would be the preferred option.
The seller also needs to acquire confidentiality undertakings from all prospective purchasers. It should bind the bidders, their affiliates and professional advisers, and any other entity that partakes in the evaluation process.
Lastly, the seller must try and make sure that the staff are not disquieted by the controlled auction. Ideally, only a handful of personnel should be aware of the sellerÂs plans in this regard.