Sale by auction – first round of bidding

An auction sale has two bidding rounds. In the first round, the Information Memorandum is distributed along with a process letter the seller is essentially inviting the addressees to make an offer. Prior to sending out the Information Memorandum and process letter, the seller will approach prospective bidders and procure confidentiality undertakings.Â

In regard to the process letter, the seller is likely to articulate that the highest bidder will not necessarily succeed as the former would like to maintain the utmost flexibility. Furthermore, the seller will invariably reserve the right to amend or discontinue the sale process at any time and will make sure this is clearly stated in the letter.

With respect to the Information Memorandum, the document is intended to provide bidders with information pertaining to the business in order to secure sincere bids. It will consequently comprise a description of the business, its history, the main assets, financial information, and details relating to employees. It is imperative to appreciate that this list is by no means exhaustive and the contents of the document will vary from case to case.

In the event that the letter is companioned by draft sale documentation, the bidders may choose to make certain amendments and furnish a revised copy to the seller. During this stage of the auction, the seller is essentially trying to ascertain the interest levels of the bidders and discern any obstacles that may inhibit a sale from materialising.Â

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