Two-step Private Auction

What Does Two-step Private Auction Mean?

A two-step private auction is a variation on the controlled auction process used in the sale of a privately held mid-market business. The other variation is the one-step auction process.

As the name suggests, the process follows two-steps. In the first step, prospective buyers will provide a written expression of interest that outlines valuation and deal structure based on a review of limited information presented in a confidential information memorandum.

Based on review of the valuation and the terms in the expression of interest, the seller and their advisors will select a limited number (6-12) of top prospects to participate in the second step. These prospects will receive more detailed information and will be invited to management presentations. Shortly thereafter, the buyers will be asked for formal offer and, often times, intermediaries will provide seller-friendly purchase agreements to the buyer for their insertion of price and terms.

Divestopedia Explains Two-step Private Auction

A two-step auction is more formal than the one-step auction because each phase of the sales process will have a ridge deadlines for prospective buyers to adhere to. Use of this process requires a highly attractive acquisition target that will motivate buyers to follow a formal auction in hopes of winning the bidding process. All rules and key dates for the auction are fully communicated to the buyer at the beginning of the process.

The major differences from a one-step process are that the buyers are aware that they will be involved in a rigid auction and the number of prospective buyers is larger given the desirability of the target. This larger pool of buyers also increase the risk in breaches of confidentiality.