Knowing the answer can move you toward a euphoric exit event
It’s very common for owners of privately held businesses to be approached by a potential acquirer looking for the opportunity to have a private viewing of their business. When selling, there are two options. Run a public auction, by which you will introduce your company to as many potential acquirers as possible. Or you can run a private auction, which has you focused on only one potential acquirer. When is doing this in your best interest and when is it not? At a high level, here are the pros and cons:
Pros of running a private auction – know that normally the benefit here goes to the acquirer and not you as the seller. But there are a few reasons you might consider this approach:
- The distraction for you and your team could be less versus having to meet with multiple potential acquirers, giving them management presentations and facility tours
- You might have a special connection with the acquirer and see them as the best partner for your business going forward
- The acquirer may have placed a premium in their offer for the right to have a private viewing of your business and in some cases, even offering a break-up penalty should they ultimately decide to back away from the transaction
Cons of running a private auction:
- You lose the benefit from there being competition to acquire your company. With a sole acquirer, they don’t feel the pressure of having to sharpen their pencil as much in making an offer because they know they aren’t competing against others
- You won’t have anything to compare a single offer to, so of course you will naturally wonder whether it’s a great offer you are receiving
- You lose the leverage in the deal negotiations and process. The acquirer will know they are the only game in town and may take advantage of this by dragging out their due diligence and/or trying to change their initial offer valuation or deal structure. They will know you are invested in the exit and you don’t have other suitors standing by and may try to take advantage of this
Being euphoric from the future sale of your company will require knowing which of these two exit strategies is best in your situation. Get experienced input specific to your company and your personal situation to determine which will help you optimize what could be the most important event in your professional life.
