How to Win in an M&A Auction Process?

As you continue with your deal sourcing efforts, sometimes you may get inbound inquiries to look at acquisition opportunities. And it may be in the form of participating in an auction. Have you ever wondered how you should cope with such situation? How do you stand out and be selected from all the bidders?

In this article, we will talk about what you should pay special attention to when your company decides to take part in such a seller-driven process.

First of all, we would like to note the two key differences in an auction process from a normal buyside process. The competitive tension and the process protocol.

An auction process will be more competitive because there are likely multiple interested parties looking at the asset, and there could only be one final winner.

In terms of process protocol, an auction process will have fixed timeline with specific guidelines. What this means is that you will need to appeal your company to stand out from the crowd, and at the same time, carry out your due diligence and other workstream expeditiously to meet the seller’s requirements. However, this does not mean you should give up what you need.

An auction process is not so much different from a normal buyside process. The key steps include:

(1) Set up the team and get ready

(2) Prepare and submit an Initial Proposal

(3) Conduct due diligence & valuation

(4) Prepare and submit the Final Proposal

(5) Negotiation

(6) Signing & closing

Here we will explain how an auction process is like and what are the key additional considerations to a normal buyside process.

Firstly, at the set up stage. Usually, the process would start by you receiving a no-name basis Teaser. And once you register your interest and execute the NDA, the seller will invite you into the process and share the Confidential Info Memo (also often referred to as info memo, CIM, or IM) and Process Letter.

These documents will include more detailed target company information as well as the guideline to participate in the deal process. In order to meet the seller’s guidelines and make sure that you have sufficient time to conduct due diligence, we would recommend that you assemble your M&A project team as quickly as possible.

For popular auction processes, it could even be difficult to find available advisors as they are already being retained by other auction participants.

Then, in the Initial Proposal stage, you would need to submit the non-binding bid letter, as a response to the process letter that the seller or the seller's advisor has shared with you. In order to successfully proceed to the second round, you will want to make sure that your bid letter follows well of the seller’s guideline. While there will be many instructions, the seller will likely put more weight on assessing your bid’s price, speed, and certainty.

On price, our philosophy is to put forth a fair value based on currently available information such as those detailed in the Info Memo.

It is understandable that you may want to show an attractive offer. So the price may not need to be too conservative at this non-binding offer stage, but you would be advised to make clear of what assumptions you are basing your valuation on. And accordingly, you will need to do more due diligence in XYZ areas to validate the price.

Simply putting in a high price with the hope of getting into the next round may not be your optimal strategy. The worst case is that you will be wasting both of yours and the seller’s time.

Other than price, you can also appeal your company by showcasing how you will be able to complete the deal expeditiously.

For example, you may only require a few internal and external approvals. Or you do not need to arrange additional financing, etc.

Of course, if you have already retained your advisor teams, it is also a strong message to the seller that you are serious about the auction and are already in position to move quickly.