Summary
Summary SGS 3 prep reading
- Module
- Private Acquisitions
Prep reading organised by the learning objectives
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Seller
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Selling a company or business by auction- notesAdvantages/Disadvantages of auction sales for sellers
● Can reach a larger pool of potential ● This is not a suitable option for every
buyers. business as the market sector may be
● Competition maximises the price. limited or the structure of Target is
● Can secure better sale terms due to complex with many external factors
the competitive nature. (they can run which make auction an impossibility.
simultaneous negotiations and thus ● Transaction costs are higher as thet
do not have to commit until principal usually use banks/corporate finance
deal terms agreed) advisers to advise on the auction
● Control of the translation timetable process.
● More control over the DD process. ● Potentially higher legal fees as there
● Can help in showing SHs that the will be parallel negotiations/more
best price has been achieved. docs.
● Lots of time commitment as it is a
prolonged process.
● Knowledge of sale of business may
interrupt business as usual and risks
losing key staff.
● Some bidders may be wasting your
time/finding out information about a
competitor- it is not always possible
to control this with a confidentiality
agreement.
● If the auction does not result in a
sale, the failure will be public and
people will likely question why.
Thus leading to loss of reputation.
Concerns of the bidders in an auction sale…
● They may be forced to pay a higher price.
● Reduced chances of achieving a successful deal which therefore would waste time
and fees. Imperative bidders keep a tight control on costs in this process).
● Fewer warranties/indemnities/protections are likely to be awarded by the seller.
● Limited DD
● Less opportunity to build relationships
● More risk to the reputation/business of the target as the news of the auction will be
public knowledge.
Aim of the bidder:
● Aim usually is to be selected as the preferred bidder so that an extended period of
exclusivity can be agreed. This will give them an opportunity to treat the transaction
more similarly to a bilateral sale.
○ This can be done through making an early pre-emptive bid.
, ○ Certainty of available funds can be enticing to seller to select a PB.
○ Completing DD within the time-frame requested by seller and submitting a
full mark-up of the sale docs may also improve their chances.
How the seller preps for an AS
● Must establish their deal term and agree all member;s responsibilities- they may be
dealing with multiple people at once so must ensure that they are able to deal with
bids from multiple individuals at once.
● Usually must appoint a financial adviser to manage the auction. This will incur added
feed but it will be useful (adds credibility to the process and lets seller reach a wider
range of buyers)- their role will be
○ Soliciting bidders
○ Prepping marketing materials for the transactions
○ Dealing with requests for access to management
○ Handing DD requests/general questions/price negotiations
Sourcing your potential bidders and evaluating the bids
● They may have previously shown interest or may just operate in the same industry,.
● Seller financial adviser will usually contact a range of financial and strategic buyers to
gauge their interest in potentially acquiring the target.
● Seller should evaluate the likely bidder and what constraints may affect each.
● Evaluate factors which could increase transaction costs/risks.
● Final bids should be evaluated against the wider considerations of risks/costs before
identifying the winning bidder/
● Relevant considerations include…
○ Competition risk assessment: may be less attractive if they are in the same
industry as their respective shares of the relevant product/service may result
in a combined market share which could cause issues. Long and uncertain
CMA approval process could delay the transaction and increase the overall
costs.
○ Transaction approach: Need for SH approval may impact the speed of the
transaction. Bidders are usually encouraged to get all of the necessary
approvals before their final bid is made. Any bids with a condition of SH
approval are likely to be viewed less favourably.
○ Buyer financing: If bidder wants to finance the acquisition with new
debt/equity the seller should require suitable reassurances over the full
commitment of this financing source. Bidders who don’t need this are at lower
risk and thus may be preferred, even if their bid is lower.
○ Employee consultation: Consultation with employees/their reps may be
needed prior ro completion. This could result in one bidder having preference
over another. Especially due to confidentiality implications/
○ Post-completion ops: Seller must anticipate the bidder concerns about their
target’s ability to independently operate following sale. A post-completion
transition of ongoing supply arrangements or sharing of IP rights, staff etc is
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