A controlled auction is one of the ways a business can be sold. The structured process entails competing bidders (prospective buyers) engaging in a bidding war. A competitive element is incorporated in order to acquire the most favorable price and sale terms. Furthermore, this competitive procedure enables the seller to be in the driverÂs seat regarding the pertinent documentation and timetable.
In contrast to the majority of private treaty sales, a sale by auction requires a go-between (normally a financial adviser or a solicitor) for potential bidders. It is imperative that the seller is thoroughly primed for such a sale if they want to control the relevant documents and the due diligence process. Consequently, a substantial amount of work has to be done by the seller and their advisers before the sale procedure is initiated.
There are a number of benefits for the seller if they choose to employ the auction process. The tendering procedure (as outline above) is designed to engender the best price for the business. Of course a lot will depend on how well the auction has been advertised/promoted. There may be instances where a bidder will preempt the competition from making an offer by tendering a nonpareil price and could therefore become the only entity with whom the seller negotiates the terms of sale. In any event, the seller will compose the first draft of the sale documentation and from a negotiating standpoint, would always have the upper hand. Moreover, the seller will endeavour to utilise the data room that has been created for the sale to regulate the disclosure of germane documentation. The seller is also in charge of the timetable and can, if they so wish, reduce the duration between exchanging contracts and the completion of the sale.