The Auction Process: Advantages and Disadvantages and the Key Steps
By Mark Davies, King & Spalding and Trinh Chubbock, King & Spalding
Mergers and acquisitions represent a key growth strategy for many corporations. The M&A landscape is becoming increasingly competitive and the balance of power is shifting further in favour of buyers. For attractive businesses, however, sellers may wish to make divestments through an auction process which is designed to elicit competitive bidding among interested parties to facilitate the sale of a business or stake in a company at the highest price and on the best possible terms. This article seeks to explore the auction process and discusses:
the differences between a competitive auction and bilateral negotiations;
the advantages and disadvantages of a competitive auction; and
an overview of the key steps in an auction process.
Auction Process vs. Bilateral Negotiations
Business owners deciding to sell a company or business may choose to sell by way of bilateral negotiations or a competitive auction process. Unlike bilateral negotiations where a seller and a buyer negotiate directly, in a competitive auction, the seller seeks competing bids from potential buyers for the target. Further, in an auction process, the seller will carry out a substantial amount of work before the process is underway and, as a result, generally require the engagement of advisers in the early stages to prepare for auction launch. In bilateral negotiations, the buyer often provides a “shopping list” of requirements for the due diligence investigation. In an auction, however, the seller controls the disclosure process by limiting the scope of information made available and ensuring that disclosure is made in a controlled manner, usually through the use of a data-room. Finally, an auction process often involves an expedited transaction schedule.
There are circumstances, however, where an auction process is not suitable. If the business is structurally complicated or if the market sector is limited and there are only a handful of viable bidders, the additional complexity of, and costs associated with, an auction process may not be worthwhile. Where significant external factors may affect a transaction, such as regulatory or competition issues or third party consent requirements, the potentially protracted timescale in resolving those matters may undermine a key benefit for the seller – i.e. speed. Further, where such external factors exist, the standardised documentation prepared in connection with an auction process may be impractical or impossible for certain bidders.
EMPEA plays an important and energetic role across the markets it represents, driving outreach and research initiatives, and promoting the role of private capital.
Brian Lim | Partner and Head of Asia and Emerging Markets, Pantheon Ventures
The developed markets have no equivalent to the role EMPEA is playing as a convener and source of trusted information in the emerging markets.
David Rubenstein | Co-Founder and Co-Executive Chairman, The Carlyle Group
I’m honored to join fellow industry pioneers in the leadership of an unparalleled network, filled with first movers, shaping the future of industries and communities.
Dr. Andrew Kuper | Founder and CEO, LeapFrog Investments
EMPEA's market and industry intelligence opens doors to new sources of capital. I look forward to the future success of EMPEA and its members.
Torbjorn Caesar | Senior Partner, Actis
While there are certainly challenges for the industry, the opportunities abound in our target markets and globally, making a global association like EMPEA more relevant than ever.
Drew Guff | Managing Director & Founding Partner, Siguler Guff & Company
STAY UP-TO-DATE ON EMERGING MARKETS PRIVATE CAPITAL ACTIVITY
SVB/EMPEA Webcast I Uncharted Waters: Investor Perspectives on the 2020 Global VC Scenario
Wednesday, August 5, 2020 | 8:00am – 9:00am PDT
SVB and EMPEA invite you to a discussion where today’s leading investors- Yar-Ping Soo of Adams Street Partners, Sandeep Naik of General Atlantic, and Eric Acher of Monashees, will share their unique perspectives on the 2020 Global VC climate.
In addition, attendees will get an exclusive look at 2020 YTD Trends in VC+Tech Dealmaking by Julie Ruvolo, Managing Director of Venture Capital, EMPEA.
The Global VC Cache is a new bi-weekly newsletter covering cross-border tech transactions and innovations with cross-border applications in a rapidly changing world.
Geographies include Asia, Africa, Latin America, the Middle East, and other emerging venture+tech markets.