Are bidding wars a good thing?

From an unsolicited bid from one Private Equity group to a full on bidding war – Morrisons Supermarkets saw its share price rise by 11% today as the number of bidders increased to 3 and is expected to increase.

In the private sector, the competitive tension that results from having several bidders can also increase the sale price, but it’s important that this process is carefully managed as it may not be the highest bid that wins the deal.

For a start, good competitive tension requires truly committed sellers and buyers. When you reach the stage in the sale process where offers are coming in, both parties need to feel secure about taking this potential transaction through to completion. It’s a time consuming, resource hungry and expensive part of the process – depending on the type of deal, it is more expensive for the buyer so the last thing a buyer wants is a vendor that’s wavering about selling up.

A good adviser will have already talked through your price expectations and will have expressed the need to be realistic in those expectations. They will have done their research and analysis of your business and your marketplace in order to get a pretty good understanding of what a good outcome would look like. But once you are at market it’s essential to make sure that all your assertions and financial results can be supported by data.

Its important also to respect the position of the bidders – they will have put a lot of work into evaluating whether to bid at all, knowing that there will be more work and more cost involved in getting the deal over the line.

Consider each bid from every angle that’s important to you – price, terms, timescales, impact on your staff are just a few. Most buyers will have been through the process several times, especially if they are financial buyers, whereas for most sellers it’s a one-off experience so its vital that you can trust your adviser to guide you through these unknown pathways.

A competitive bidding situation should not be a dutch auction, but a process that results in a good outcome for both seller and buyer. A badly run process is more likely to see good potential buyers fall away and move on to other opportunities or a good vendor walking away from a deal that could never meet their requirements.

A well run process will result in the right buyer for your business moving forward to due diligence.  At this stage, a final word of advice – do use an experienced M&A lawyer – you wouldn’t use your GP to perform life-critical surgery and selling your business is pretty much a life-changing event, so don’t take risks.

If you would like to find out what’s involved in selling a business please get in touch by phone or email for a confidential discussion without further obligation.

 

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