Bidding Process in Business Sale: More Competition, Better Price

Scenario 1: You have ONE potential buyer. You negotiate with him. He says: "I offer you 5 million." You say: "No, I want 6 million." He says: "Okay, 5.2." And so on. That's bilateral negotiation.

Problem: This one buyer controls pricing. He can say: "Not your best price? Okay, I'm out." And you've lost.

Scenario 2: You have 5-10 potential buyers. They compete for your business. The first bids 5 million. The second bids 5.5. The third bids 6. And so on. That's an auction.

Advantage: The price rises naturally because buyers compete with each other.

With VALENTYR, we've seen: Businesses negotiating bilaterally get 10-20% less than businesses doing an auction.

A simple example: Two identical businesses, both worth 5 million.

• Business A: Bilateral negotiation with 1 buyer → sells for 4.5 million

• Business B: Auction with 5 buyers → sells for 5.5 million

The difference: 1 million€. That's 20%.

Therefore: A controlled auction is almost always better.

A professional auction has phases:

PHASE 1: INDICATIVE OFFERS (2-4 weeks)

You send an information memorandum (your "sales brochure") to 10-15 potential buyers. They say: "We're interested, but we need more info. Our indicative offer is 5 million."

That's non-binding. It's like: "If the numbers check out, I'd be interested at this price."

You filter: The top 3-5 buyers with the best indicative offers are invited for conversations.

PHASE 2: BINDING OFFERS (4-6 weeks)

The top buyers do due diligence (review your numbers, contracts, risks). Then they give a "binding offer": "We offer you 5.5 million for your business."

That's semi-binding. The buyer is committed, but there can still be conditions.

PHASE 3: EXCLUSIVITY (2-4 weeks)

You choose one buyer (normally the one with the best offer). You sign an "exclusivity agreement" – that means: For the next 4 weeks, you negotiate only with this buyer.

That gives the buyer security: He knows you're not going to a competitor.

With VALENTYR VOS standardization, buyers can decide faster. The indicative and binding phases move quicker.

Interesting observation: In an auction, buyers often bid MORE than in bilateral deals.

Why? FOMO (Fear of Missing Out).

Buyer thinks: "There are 4 other buyers. If I don't bid aggressively, I won't get the business." So he bids more.

That's the psychology of auctions – you use the competition to your advantage.

But: You must manage the auction correctly:

1. ENOUGH BUYERS: With only 2-3 buyers, the "FOMO auction" doesn't work. You need at least 4-5 serious buyers.

2. NO BIAS TO ONE BUYER: If buyers notice you prefer one, the others won't bid more. Stay neutral.

3. SET DEADLINES: "I need your binding offers by September 1." That pressures buyers to decide faster and bid more aggressively.

4. TRANSPARENCY (LIMITED): Don't tell buyers how much another one bid. But let them know there's competition.

With VALENTYR M&A support, we can manage this auction dynamic for you.

There are cases where bilateral negotiation is better than an auction:

SCENARIO 1: STRICTLY STRATEGIC BUYER

Only one buyer makes sense for your business. E.g., a large corporation that perfectly integrates your products into its portfolio. You want THIS buyer, not just any buyer.

Then: Don't do an auction. Negotiate bilaterally. The buyer will know you're negotiating with him alone and will give better terms.

SCENARIO 2: YOUR BUSINESS IS "NICHE"

Only 2-3 buyers make sense. E.g., a highly specialized business in a specific industry. An auction with 10 buyers doesn't make sense because 7 would never buy.

Then: Focus on the 2-3 relevant buyers. Negotiate bilaterally with each.

SCENARIO 3: TIME PRESSURE

You need to sell quickly (health, family circumstances). An auction takes 3-4 months. You only have 4-6 weeks.

Then: Bilateral deals are faster. You find 1-2 buyers and negotiate intensively.

But: In most cases (where you have time and multiple buyers are possible), an auction is better.

A good auction needs good preparation:

1. INFORMATION MEMORANDUM: A professional sales brochure. Not too long (20-30 pages), not too short (at least 10). With key information.

2. FINANCIAL PROJECTIONS: Buyers want to know: "What are your future numbers?" Show them realistic 3-year projections.

3. MANAGEMENT TEAM PRESENTATION: Buyers want to see and meet the team. A 1-hour presentation with management.

4. Q&A PROCESS: Buyers have questions. Have a process to answer questions quickly and professionally.

5. DATA ROOM: All documents (financial reports, contracts, licenses, etc.) in a secure online system.

With VALENTYR VOS Assessment, you get a professional information memorandum and financial projections that buyers trust.

You've won the auction – one buyer made the best offer. Now comes the contract.

The purchase agreement is complex. It has hundreds of points:

• The price (obviously)

• Payment terms (When does the buyer pay? 100% at close? Over time?)

• Reps & warranties (What do you guarantee to the buyer?)

• Indemnities (What happens if you lied?)

• Earn-outs (Does the buyer pay extra if the business does well?)

• Non-compete (Can you start a new business in the same industry?)

Here you need a good lawyer. He negotiates the contract terms with the buyer.

With VALENTYR, we have an M&A lawyer network that can help you.

Step 1: Identify 10-15 potential buyers.

Step 2: With VALENTYR VOS Assessment, create a professional information memorandum and financial projections.

Step 3: Write a "teaser" (1-page summary) and reach out to buyers: "I have a potential investment for you."

Step 4: Interested buyers sign an NDA and get the full information memorandum.

Step 5: Collect indicative offers. Top 3-5 buyers for phase 2.

Step 6: Management presentations and deep-dive due diligence.

Step 7: Collect binding offers. Select the best buyer.

Step 8: Exclusivity and contract negotiation with the best buyer.

Duration: 3-4 months. Price difference vs. bilateral deal? Often 20% higher.

Result: 1-2 million more in selling price. That's worth it.