Sale of companies: ¿Auction or bilateral negotiation?

Auction or individual negotiation



The decision to conduct an auction process or a bilateral negotiation has great significance, when selling a company is started.

Depending on the chosen path, the results may differ greatly. What are the advantages and disadvantages of these alternatives?

Sale by auction

First we imagine hearing the word "auction" is a room with a few characters of questionable profile, a shameful amount that the property is awarded. The companies selling by auction It is not like that at all. It is about making a sale process open, in which be brought to the negotiation numbers high enough candidates to ensure a good price, yet, maintaining control. Normally a restricted auction takes place between a number of buyers who may be interested. The open auction, released "from the rooftops", can, sometimes, backfire and detract from the company that wants to sell.

The main advantages of the auction are the following:

On the one hand, the existence of more buyers to maximize the price. Nothing like "bring more candidates to the negotiating table" to improve our chances (and for those interested, I recommend the book "Three Dimensional Trading" from DALax and JKSebenius).

Other, in a way allowing shorten and close the transaction in a shorter period. In an individual negotiation with a large company, time can be lengthened more than what we need and buyer, knowing that we negotiate only with him, You can prolong the negotiations for their own benefit.

However, the multilateral negotiations by auction, represents a more work and complexity to who is responsible for the sale. Occasionally, this is difficult to maintain confidentiality process. And at the end thereof, inevitably some individual negotiation with the final candidate. And the period when the process is done can not match the at which the best buyer is prepared for purchase.

Bilateral Negotiation

In this case, the sale process develops one candidate.

In principle, negotiation "one to one" may be faster (unless the buyer intends to undermine our ability to negotiate lengthening the process) and is easier to maintain confidentiality. But the existence of a single candidate weakens our negotiating power, and generally will allow us to obtain a lower price.

Overall, when the objective is the sale of a business, is advisable to have several candidates and not negotiate with a single buyer.

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