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Sale of a Company: 7 Different Approaches
By Steve N. Economou

Curtis Financial Group recently sponsored and presented at a “first of its kind” event in Philadelphia. By special invitation, over one hundred CEOs, CFOs, and industry leaders attended the half-day M&A Symposium hosted by the region’s leading investment banking firms. The symposium provided various presentations on M&A topics. In a well attended session, Curtis presented a discussion entitled, “Negotiated Sale or the Auction Process—Which is the Better Way to Sell a Business?”

We suggested this topic because we are frequently asked, “What is the right way to sell my business?” We believe that the right way to sell a business requires a careful consideration of many factors and the best solution falls along a spectrum of alternatives.

Factors to consider in choosing an approach to sell a company include: general market conditions, valuation, industry attractiveness (or trendiness), specific company characteristics (such as absolute size), circumstances of the shareholder(s), industry dynamics, attractiveness to financial buyers, number of potential buyers, and market appeal. A business owner is best served by an advisor who can evaluate the relevant factors and then design the most effective sale process.

Along our spectrum of alternatives there are seven approaches to selling a company. Following is a description of each.

Exclusive One-Off Sale
Exclusive one-on-one discussion between a buyer and a seller. This frequently happens when companies have a compelling mutual interest and key executives begin a dialog regarding an “enhanced relationship.”

Closed Negotiation
Limited contacts with buyers, focusing on those companies that have approached the seller in the past. Common when a firm receives several inquiries from financial buyers and a large industry player.

Targeted Solicitation
High level approach to executives of a selected group of “pre-screened” buyers. This approach might be used when a seller is approaching the sale opportunistically. Sometimes this approach is used to “test the market” for potential valuation, market appeal, or both.

Controlled Sale
Common middle market investment banking marketing process for smaller companies. Prepare a descriptive memorandum and contact a wide range of possible buyers. Buyers are targeted based on probable interest and ability to close. Does not impose firm “bid” deadlines on buyers.

Controlled Auction
Typical investment banking process for larger middle market sellers. There should be a wide range of logical and qualified buyers including financial buyers. If the process proceeds well, the investment bankers can stick to a very structured process and strict bid deadlines. Best used when there is little question regarding the seller’s commitment to sell.

Public Auction
This sale process is much like the controlled auction above, but adds the element of a public announcement. This could be in the form of a 363 sale in bankruptcy court or a press release by a public company.

Broadcast Distribution
This method utilized by many small business brokers. The acquisition opportunity is frequently profiled in newsletters, internet sites, and large email distributions. The seller simply waits to see if anyone is interested.

Each approach has its own advantages and disadvantages as well as situations and companies for which they are better suited. These factors are more fully addressed in our full presentation from the M&A Symposium.

Please click here if you would like a copy of the presentation.