While it may not be about one’s own child, the importance of one’s own business is often at least just as great. If an entrepreneur has decided, after much deliberation, to sell their business, the expectations for this process are therefore particularly high. Most people only sell their business once, so everything has to go perfectly—without a single mistake!
But what is the best solution? Is it the long-standing competitor with whom a love-hate relationship has developed over many years? A merger that would, without a doubt, significantly improve the competitive position? Or could it be the financial investor, who is primarily interested in an attractive return on invested capital?
Each year, around 500 business owners contact us to learn more about the process. In principle, the sale can take place either through a bilateral, one-on-one process involving a single prospective buyer or as part of a structured bidding process. But what are the key advantages and disadvantages of each option, and are they even mutually exclusive?
Auction: Focus on Price
From the very beginning, an auction is characterized by the simultaneous engagement of a select group of bidders, which results in a higher probability of a successful closing. If discussions with individual prospective buyers reach an impasse, there is no need to start over. The pool of serious interested parties continues to narrow with each step of the process. Selection is typically based on the financial parameters of the transaction. Submitting offers early prevents the issue of price—as is often the case in one-on-one processes—from being put on the back burner.
Individual Process: Advantageous for the Buyer
The individual process is usually characterized by a high level of trust between the parties involved. Often, a long-standing business relationship already exists and/or the future business strategies share important commonalities. The focus of the discussions is much more on strategic fit than on terms and conditions. In the search for potential synergies, the price discussion quickly takes a back seat.
This is certainly not unintentional on the buyer’s part. After all, the individual process represents the clearly preferred solution for prospective buyers. A long, intensive, and exhausting process that culminates in a good gut feeling based on a promising future strategy—surely it shouldn’t fail just because of the purchase price?!
Every case is different
The optimal approach always depends on the individual case, and one option does not preclude the other. For example, an auction always allows for a transition to a private sale process if individual prospective buyers stand out for various reasons. Conversely, converting a private sale process into an auction usually causes friction.
Once the decision to sell has been made, the project should be implemented within a set timeframe whenever possible. In exceptional situations, the speed of the process can even determine the company’s very survival. To ensure this, initiating a structured bidding process makes the most sense due to its rapid implementation and high probability of a successful transaction.
If, on the other hand, there are strategic considerations that also take into account a merger with selected and already identified market participants—but which do not necessarily result in a sale—then a private process is the better approach. To ensure discretion even within the context of an auction, indicative offers should be submitted anonymously. The identity of bidders is then disclosed only to those interested parties who submit satisfactory terms.
Support from Professional Advisors: Relief Throughout the Entire Sale Process
A consultant with process experience adds value to both the auction and the private sale. In a private sale with existing prospective buyers, consulting should be a given at the latest upon the Letter of Intent to ensure improved or at least market-standard terms. In an auction, the consultant manages the entire process.
It should also be noted that the process demands resources that the seller does not have in addition to their day-to-day business operations. To still be able to deliver the quality and speed of the process demanded by professional buyers, a consultant is also necessary.
If time allows and neither the terms nor the future of the company are a factor, a consultant can also be replaced by a real estate agent.
