What's the best way to sell a company?
So I just started out in M&A and I finally got a hang of it. Currently a second-year analyst and after being on the sell-side for a year, I wanted to throw the question out there- what's the best way to sell a company? (and by this I mean get the highest value for it)
The obvious answer- it depends.
To break it down, I'm going to list down the different ways to sell a company that I've learned throughout my experience in IB, also through some supplemental reading and what I think about them. Pardon if my opinions are not holistic and complete, I'm just laying whatever opinions out here anyway.
- The Auction
-A full-scale auction is gathering a large pool of potential clients to bid on the company you're trying to sell
-What we do here is we make a no-name teaser on the company with a 2-page transaction summary and send it out to get buyers to sign an NDA
-Once the NDA is signed, we know there's some interest there and divulge non-public sensitive info to help them value the company, this is basically your financials, corp structure and whatever else they feel they need
-From here, we get the indication of interest through non-binding term sheets, facilitate the second round of DD which leads up to getting their final bid
My thoughts: for an analyst on this deal team, this one implies a bit more work cause I have a lot of following up and coordinating to do. Do I think this brings out the most competitive price? I guess theoretically, it should, but it doesn't always. Problem with this is that it also gives our buyers a lot of inside info and the potential buyers we approach tend to be strategic investors who could also be our competitors. Sometimes potential buyers just show interest to fish for info without actually intending to buy the companies. Nonetheless, with a lot of bidders, the pressure to bid more competitively is real.
I do a lot of bids for government PPPs on rights to build infrastructure-representing the buy-side, though. Anyone can apply to bid but only the largest conglomerates join as the smaller ones don't really make the cut. The company I represent is pretty notorious for placing huge bids and this scares the competition away, leading to them submitting bids that aren't so much higher than what they believe the value is.
- One-on-one negotiations
-Basically, you just negotiate from CEO to CEO
My thoughts: I believe that this one's pretty relationship-based but definitely a straightforward way to sell your company. Private, usually swift and clean. For this to take place though is highly dependent on top management having a set vision with high determination to execute. This type usually cuts the deal time shorter, but takes the risk of the deal totally dying if the sole buyer changes his mind.
- Hostile take-over
-This is a bidder-initiated transaction, basically if you're the company selling, you were approached first, without real intent to sell and eventually considered it
-What happens here is that after the initiating bidder makes inquiries about acquiring the company to be sold, the selling company tries to get more bidders to compete to get higher value
My thoughts: I've dealt with one like this, advising the initial bidder on the second bidding round where we've had to face additional 3 bidders and yup, this definitely pushes up the price. We bid 8% more than what we originally offered. I guess it sucks for the initial bidder, but the role-reversal aspect of this hostile take-over is interesting.
- Controlled sale
-This is just an auction but only to a very select few
My thoughts: While there is no "one-best-way" to sell a company, this would more often than not be the better choice. Why?
-You streamline your efforts only to companies who would likely have real interest.
-Though you forego capturing other potential buyers not invited to bid, you also cut some costs incurred in reaching out to these people, and you also cut deal time, which is always good for us bankers
-Better control on the spread of info
-This method definitely still spurs up competition on price
-Gets bidders to bid aggressively especially when they are not discouraged by that one potential buyer with the rep. of bidding notoriously high
Anyway, I guess that's all. I'm sure the rest of the folks on this site have better input, these are just my contributions so far.
