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English Auction

Definition - What does English Auction mean?

An English auction is a process in which an asset is sold through a suggested opening bid reserve or a starting price that is set by the seller. Increasingly higher bids are accepted from the gamut of buyers. Ultimately, the price is adjusted in a direction that's unfavorable to the bidders.

The process is competitive in nature, and there is a higher probability of the firm being sold. The firm reserves the right to take itself off the market if an economically fair bid is not forthcoming or the reserve is not met.

Divestopedia explains English Auction

Any auction is run by rules and a schedule clearly expressed in advance. Bidding starts with a low price, which is raised as progressively higher bids are solicited until either the auction is either closed or no higher bids are received.

In mergers and acquisitions, successive bids increase by large increments. Specifically, in English auctions, bidding is opened for observation by all parties and the bidders are aware of the prices and number of other bidders. The identity of the other bidders is disclosed during the auction; unfortunately this means that some confidentiality is lost amidst the process. The standing bid is the highest bid at a point in time against which a competing bidder can place a higher bid. The English auction ends at a specific time, and when no new bids have been made during the specified time period. This allows the seller to secure the highest price as it is an open ascending price auction.

English auctions are rarely used in the sale of a mid-market business. Setting the reserves price would preclude the chances of receiving a higher bid unless the selling firm is highly desirable to a number of logical acquirers willing to enter into competitive bidding.

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