What Does One-step Private Auction Mean?
One-step private auction is a type of sales process used by M&A intermediaries when selling a business. The intermediary attempts to maximize value by obtaining multiple offers from prospective buyers. This type of process is less formal than a two-step private auction because, although the selling company will attract interest from prospective buyers, it is not expected to create an auction environment that will lead to a bidding war.
Divestopedia Explains One-step Private Auction
In a one-step auction process, M&A intermediaries approach a handful of synergistic buyers or private equity firms, usually 5 to 20 different parties. The prospective bidders are provided with a confidential information memorandum subject to a non disclosure agreement. All interested parties review the same information within a fairly short time frame. The prospective acquirers are asked to place an offer for the business through an LOI knowing that there are other potential bidders. The M&A advisor's goal is to try to receive multiple offers within a few weeks of each other to foster competition and comparison between the offers. After the offers are reviewed, the advisor will try to negotiate higher purchase prices and better terms with the parties before ultimately proceeding exclusively with one party into due diligence and further negotiation of a purchase and sale agreement.
It is usually communicated to the prospective buyer that the sales process is a not full blown auction with only a limited number of other potential bidders. This is due to the fact that, although the target may be a quality company, it is not a premiere acquisition candidate with characteristics that would evoke buyers to enter into a competitive auction. If it was known to the buyers that there were other competitive bids, many buyers would likely walk from the process rather than enter into a bidding war.
One-step auction processes can be like herding cats. The M&A advisor tries to effectively create an auction process by setting deadlines, but, in the absence of a very motivated strategic acquirer, prospective buyers will dictate the timing of presenting their offers to purchase.