As a boutique investment bank providing merger and acquisition services to owners of privately held middle market companies, we spend a great deal of time preparing and strategizing about the right approach to ensure we achieve the maximum price for our clients’ businesses. Many factors play into this process, such as performing in-depth due diligence and tying up loose ends, preparing the company’s story and sales pitch, researching and identifying the best buyers, and very aggressive marketing and negotiation tactics.
One important element to achieving the highest price relates to the actual sales process used to create a competitive marketplace for the company. Unlike publicly traded companies for which there is an established market of buyers /sellers, there is no liquid market for private companies. Thus, we must create a market.
Why is creating a competitive market so important?
Creating a competitive market puts pressure on potential buyers to offer their best deal. The seller maintains the leverage pitting buyers against one another in order to achieve a desirable outcome. Less aggressive buyers tend to fall away and the process whittles the list of potential candidates down to the serious buyers.
Building a competitive market allows the seller to simultaneously evaluate multiple bids, deal structures and potential buyers, putting him in a position of strength to decide which opportunity is best to pursue.
Building a competitive market allows the seller to view a broad range of possible offer prices. It is common for the differential from low to high bid to be more than 50% to 100%. Imagine how much money a seller could lose if he pursues only the low bidder in a non-competitive, direct negotiation? It is significant. How would the seller know if he is getting the highest price without running a transaction process that builds a competitive market?
Rarely do non-competitive, direct negotiations, especially ones based on unsolicited offers, result in the highest prices. The buyer knows it is the only party at the table and feels no pressure in putting forth its best offer.
Example Case Study
Here is an example showing the possible range of values received from four potential buyers for a private investment banking client. Note the disparity among values.
(Dollars in millions)
The differential between the high bid and low bid is almost 50%. What if the client had NOT engaged a middle market investment bank to create a competitive market, and instead, pursued a one-on-one negotiation with Buyer D only? If the client closes the deal with Buyer D, he has given up a lot of money. However, he would never know it!
In summary, just like many bidding situations in life, creating competition for a seller’s business is critical to achieving maximum price. Engaging a mid market investment bank to run a sales process creates competition that drives up price.
About Wilcox | Swartzwelder & Co.
Wilcox Swartzwelder and Co. based in Dallas, Texas, is a boutique investment bank providing merger and acquisition services and corporate finance advisory services to middle market companies in the energy, industrial and infrastructure sector. The Firm delivers a high level of personal service, in-depth industry knowledge, rigorous transaction execution and superior results. Principals have successfully completed almost 100 transactions with aggregate value in excess of $3.6 billion.
Mr. Jason Wilcox
433 E. Las Colinas Blvd.
Waterway Tower, Suite 1200
Irving, TX 75039
Securities offered through PetroGrowth Energy Advisors, LLC., member FINRA/SIPC.
For more information about private investment banking follow this web site www.ws-ibank.com .
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