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What’s The Best Way to Sell Your Business? Auction or Private Sale? – Post #27

Best Way to Sell Your Business

We’ve been discussing the actual sales process in our Building a Sellable Business series. Once you’ve assembled your team and hired a sales facilitator, you all work together towards the end. You estimate your business’s actual value. Then, you identify your ideal type of buyer. As you prepare your pitch book and practice your sales presentation, it’s time to choose the best way to sell your business… can you make the most money by selling your company through a public auction or a private sale? 



Selling Your Business Through Auction

Depending on your personal preferences, your personality, and your professional team’s advice, you may choose to sell your company through a private auction.

If you’ve ever been to an auction or seen one on TV, you’ve likely seen a fast-speaking auctioneer rattling off requests for bids. At some auctions, silent and calm audience members will raise hands, fingers, or number cards to indicate their intent to purchase the item up for sale. Event planners at these types of auctions use increasingly valuable product offerings to drive up audience excitement, participation, and valuations.

In contrast, other auction venues encourage loud and sometimes raucous bidding environments. They want audience members to yell out bids and talk over other participants. In this case, event representatives hope that excessive noise and hyped-up emotions will increase excitement and participation levels. Essentially, they use the high intensity of controlled chaos to drive up bid values.

Similar to the two types of auctions I mentioned above, you have two basic ways to solicit buyer bids. On one hand, you can quietly and privately accept bids, quotes, or letters of intent from a small group of buyers. On the other hand, you can auction off your business to a large group of qualified buyers. Obviously, your goal is to get top dollar for your valuable company with terms favorable to you and to the buyer. However, your personal preferences can make a difference in whether you sell your company through a private auction or a listed sale.

Top Reasons Why You Would Use an Auction to Sell Your Business

There are a number of reasons why you would use an auction to sell your business.

  1. Competition to drive up the bidding price.
  2. You don’t want a price cap to limit buyer offers.
  3. Your product or service is in high demand and will attract multiple bids.
  4. A strategic buyer is interested in your company and needs a gentle prodding to make an offer.
  5. Buyers are already making offers before you’ve listed your business for sale.
  6. Your all-star team is worth their weight in gold.
  7. You are selling within the middle market $5,000,000 – $1,000,000,000 arena.

Your M&A Advisor or investment banker may be the best sales facilitator to use if you fall into this middle market company size and decide to auction your business. Whoever you decide to use to help you sell your business, seek guidance and help. Friends, this sales process is too big a deal to “go it alone.”

What Does the Business Auction Process Look Like?

A business auction won’t look like the auctions you see on TV, though. You won’t gather buyers in one room. There will be no fast-speaking auctioneer demanding bids from audience members. Buyers will not raise hands or numbers. Neither will they yell out bids. No, that’s not the type of public auction you will hold. What does the business auction look like, then? How does it work? What will you and your business sales facilitator do in this process?

  1. Identify potential buyers. – Privately or publicly publicise your intent to sell your company to attract identified and unexpected potential buyers. Once you know who is interested and how many people are interested in your company, your next steps will be clearer.
  2. Give your sales presentation and pitch book to those buyers. – After executing Confidentiality Agreements, show-off your pitch book. Impress buyers with your company’s historical growth, and give your sales pitch to drive up bids.
  3. Accept Indications of Interest (offers) from the buyers. – Buyers’ Indications of Interest will provide you and your team a range of your business’s sales price. Some buyers may offer $2,000,000 – $4,000,000, while others bid between $10,000,000 and $15,000,000. Their offers will indicate the valuation you can expect from your business.
  4. Answer buyer questions. – Next, give the buyers the chance to walk around your business and “kick the tires.” Begin working with those who have offered the highest bids, and set-up Q&A sessions with their teams. If you can answer their questions clearly and concisely, they may present a higher final offer than their Indications of Interest said they would.
  5. Receive and accept a final offer. – After you’ve satisfactorily answered buyer questions, let your final few potential buyers make their final offers. If they’re competing against one or two others, they may raise their bids higher than you expected. Accept the bid – the highest bid or the bid from the buyer you liked the most.
  6. Enter into final negotiations. – Once you’ve accepted ONE buyer’s offer, let your exit team and their purchase team negotiate terms that will be advantageous to both parties.
  7. Close the deal. –  Finally, get to the closing table, receive your check, and start the next phase of your life!

So that’s the most basic way to describe the way a business auction works. It’s most likely not like auctions you’ve seen before, and it can be held publicly or privately.

Selling Your Business Through Private Sale

On the opposite side of the business auction lies the private sale. Auctions aren’t for every seller. Therefore, there are reasons why you would sell your business in a private sale rather than through a public auction.

  1. Your business is a “small business” worth less than $5,000,000.
  2. You have very little buyer interest.
  3. You want to pitch a few people, not multiple people in multiple regions.
  4. Your identified type of buyer is not comfortable with the auction process.
  5. You are not comfortable with the auction process
  6. You’ve already identified a strategic buyer – a family member, an employee, a competitor, etc.

Seek Professional Guidance

So where does that leave us? Well, now is the time to talk to your business broker, M&A Advisor, or investment banker. Get your team together, too. Seek guidance from those who have walked this journey with you and from the objective sales facilitator. Work together to choose the sales vehicle right for you, for your buyer, and for your company.

No matter which way you decide is the best way to sell your business, you probably already have interested buyers. You just have to figure out which particular process will get you the highest bid.

Like I always say, life is hard. Life is fun. Life is complicated. Business can be complicated. Money doesn’t have to be. Let’s continue to make our lives, at least, financially simple.

 

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