The Most Appropriate Process
When discussing the motivating factors of maximizing M&A sale prices, value drivers are best understood in terms of how they influence either expected cash flows (EBITDA) or the perceived risk (the purchase multiple). The significance of the planning and conducting phases of the sales process can often times be overshadowed from heavily focusing on the supply side, demand side and market value drivers of transaction values. The sales process will ultimately determine if the potential sale price is realized.
There are three types of sale processes:
- Broad Auctions – employ competitive bidding process, used for standalone businesses attracting many buyers.
- Targeted Auctions – most effective when there are identifiable buyers, preserves some benefits of competitive bidding.
- Negotiated Sales – one or two buyers, typically a strategic buyer, may be complicated by the buyer.
Every business and every transaction is unique; the most appropriate process for the sale of a business is determined by market dynamics, the sellers’ objectives, and the number and type of potential buyers. An important step for all sellers and their investment banker is selecting the proper sale process to maximize the sale price.