Business Sale Marketing Processes

Business sales process and marketing takes various forms depending on the type of business, industry, market, financial health and the owner’s preferences. For mid-size businesses, the sale process falls into three typical categories: a negotiated sale, private auction or public auction.

A negotiated sale is when only one buyer is in a discussion with the seller. A private auction is used where a select group of buyers are identified and confidentially participate in the sale process while a public auction is often held for challenged companies looking for a quick sale. As most mid-market sellers are very concerned about confidentiality, a private auction is most common.

Negotiated Sale often takes place where a buyer and seller know each other, are competitors or potential strategic supplier/customer opportunities are identified. Contact may be initiated by either party and could be for the sale of all or part of the business. The negative aspect for a seller is the lack of leverage however they can always walk away if the proposal is unacceptable (as can the buyer). Sellers may however test the market before committing to the single buyer and often use advisors to assist in the process.

Private Auction sometimes called a limited auction, is the ideal process for most private market business sales. A small group of buyers compete knowing that there are other interested buyers. It allows for the process to be kept relatively quiet. The challenge to the M&A advisor is to bring in offers from interested buyers at nearly the same time. This is especially difficult as buyers have different reaction times due to decision maker availability, internal M&A resources, capital availability and competing investments. Experienced advisors ensure that realistic timelines are provided for indicative bid dates but can also discuss with buyers potential timing issues. Timing does not have to be set in stone however drop-dead dates are generally confirmed once suitable offers are received.

Public Auction or broad/formal auctions are often used to solicit offers when timing is an issue. The seller uses stages and deadlines to manage a larger group of potential buyers. Generally, all diligence materials are made available and provided in advance of receiving offers. Parameters for the terms of offer are limited to a few selected variables, such as price, warranties, escrows etc. The major issue with this type of auction is that confidential information is made broadly available and having the “for sale” sign up can be exploited by competitors.

The sale process table below characterises the various elements in selling mid-size companies.

Characteristic	Negotiation	Private Auction	Public Auction
Best to use when:	There is one “perfect-fit” prospect. Confidentiality is at a premium.	A select group of buyers is identified. This may be consolidators or other synergistic players in the market.	Confidentiality is not important. This may involve troubled or public companies.
Summarized Process:	The parties work out a highly customized deal. Investment value and owner value must be aligned for a deal to work. There may be simultaneous due diligence and contract negotiations.	The buyer group is managed in an auction setting. Buyers receive information at the same time and are herded toward an offer at the same point. This works best if synergy value is quantifiable. Can be one or two steps.	Public announcements are made regarding the sale. The market is completely explored. General offering materials are provided. Buyers are quickly sorted. Can be one or two steps.
Seller Perspective:	Seller controls the process. Information is tailored to the buyer’s needs while maintaining strict confidentiality.	Seller still maintains control of the process but there is some risk of a confidentiality breach. The final result of the process may or may not yield the highest market price available in the broader market.	An intermediary directs traffic. The seller oversees the process and should believe that the highest market price has been achieved.
Buyer Perspective:	Offer may preempt discussions with other prospects. Normally the buyer can learn enough about the subject to measure cash flow and risk.	Buyers believe they have one shot to perform or the competition may prevail in the acquisition.	Buyers believe the business will be sold, usually in a short period of time. The seller may dictate terms and conditions of the sale.

Source: Edited from Marketing Process and Approach Comparison, Middle Market M&A Marks, Slee, Blees, Nall: Wiley 2012