Mergers and Acquisitions For Dummies by Bill Snow

Process in a Nutshell” earlier in the chapter), auctions and negotiated sales have a few key differences.
    An auction is a business sale process where a group of Buyers makes their final and best bids and the company goes to the best bid. So what does best bid mean? In most cases, the best bid is the highest price, although Sellers do examine other factors, including Buyer’s ability to close a deal, how much of the sale price is in cash, and when Seller will receive that cash.
    For example, say Seller is examining two bids. One bid has a total deal value of $10 million, with $1 million in cash at closing and $9 million in the form of a note (a promise to pay later). The other offer is for $5 million, all cash at closing. Which is the better deal? Perhaps the first bid ($10 million total value) makes the most sense; after all, it’s more money. But depending on the situation, the second bid, although lower, may make more sense; perhaps Seller is willing to forgo a higher potential price for the certainty of more cash today.
    A negotiated sale occurs when Seller (or Seller’s advisor) talks with each Buyer and perhaps tailors the pitch to highlight those benefits that will be most appealing to each individual Buyer. A negotiated sale still has elements of an auction (numerous participants making bids), but a negotiated sale involves a lot more hand-holding of the Seller.
    Which process is better depends on the situation. An auction usually works best for larger, well-known companies. In these cases, Buyer may be willing to pay a premium for a famous company.
    A negotiated sale works best for smaller companies or companies with losses or thin profits.
    Some Buyers shy away from auctions. Although an auction can be a great way to sell a company, the auction may result in an unintended consequence: no bids!
    Who Has It Easier, Buyer or Seller?
    Anyone who has worked a sales job has probably dreamed about being on the other side: the buyer, the person who seemingly has all the power. Buyers, after all, are the ones who pick and choose. They get to interview numerous possible vendors and pick the one that delivers the best combination of price, quality, and, often, the intangibles of an interpersonal connection.
    But in mergers and acquisitions, that scenario gets flipped on its head. Buying companies is actually more difficult than selling companies because the M&A Buyer plays the role of vendor; Buyer has to market its deal to Seller the way a traditional salesperson would sell his or her product. The following sections look at each of these positions.
    Selling is easy if you know what you’re doing
    M&A is a strange industry because it’s one of the few that I can think of where the selling functions are in many ways easier than the buying functions.
    Simply put, quality companies with critical mass are in demand. (For more on what that means, see the nearby sidebar.) Suffice it to say that after a company gets above a certain revenue level and especially a certain profit level, Buyers of all shapes and sizes start chasing it. When an owner decides she wants to put her company up for sale, she stands a good chance of being in the driver’s seat. Assuming she follows the proper M&A process (as I outline in the earlier section “Take Note! The M&A Process in a Nutshell”), she’ll likely have multiple offers, thus putting her in a position of control.
    Although I call selling “easy” earlier in the chapter, keep in mind that that’s a relative term. Selling is typically easier than trying to make acquisitions, but selling a company is fraught with challenges, difficulties, ups and downs, and sheer white-knuckle poker playing. For more on actually navigating a sale, check out Chapter 11.
    What’s a quality company of critical mass?
    Although definitions vary from Buyer to Buyer, critical mass simply means a company that has size, scale, and scope. In other words, it