Selling a Company: To Auction or Not Auction

Question: I’m part of a small company that has been bootstrapped and grown organically over the last 4 years. We are at the point now where large competitors are very interested in us. We are seriously considering an exit. I have two questions:

1. What do you feel about auctions versus dealing with one party? In general, do you feel that auctions always the best way to get the best deal?

2. I’ve seen numerous posts on preparing decks when seeking funding. What goes in the book when it is time to sell? Basically the same? How is the story different?

(Jason).  First of all, congratulations on the interest. It’s always nice to be loved.

I’m a big fan of auctions. It’s really important to get some market validation of any deal that you are considering. That being said there are many different types of auctions that you can run. At one extreme, you hire investment bankers and enter into a formal process whereby you test the market. If you have one large competitor that is interested, likely you’ll others interested as well.

On the other hand, if you really like the deal at hand and you are on a tight time frame, you might want to quickly survey the market yourself and have these conversations. It’s a balancing act, clearly, as some cases allow you to have time to run an auction and others don’t – you certainly don’t want to do anything that will kill your “bird in hand” deal.

Regardless if you use a banker or not, make sure someone on the team is experienced in selling the company. I’d suggest that person should be outside of the executive staff (banker, board member, etc.) because you’ll need someone to play “bad cop” and you really don’t want to have the executives (who will work for the acquirer post merger) to have to play this role. For this reason alone, it might be nice to have a banker with you regardless if you do a formal auction or not.

As for what goes into a good selling deck – it’s relatively the same as fundraising, but you might focus more on how efficiencies can be derived from the larger platform that you are considering.