The dynamic where multiple buyers are interested in the same target company presents challenges for buyers. The goal of generating competitive tension is to influence buyer behavior and ultimately affect the sale process. When there is little to no competition, the buyer owns and maintains all leverage since there is no reason to give their best and final offer. You are choosing who to sell to. You are not hoping someone will buy you!
A competitive M&A sale process increases the value of the business in market, because it modifies buyer behavior when multiple qualified buyers evaluate the same company on a controlled timeline. When we represent a client who owns a prepared and attractive asset, competitive tension uncovers better pricing and provides negotiation leverage. Buyer’s typical strategies of attempting to set a low initial offer to influence the seller’s expectations and negotiations (anchor low), demand premature exclusivity, or push a large risk discount without consequences are minimized and potentially eliminated.
“I can get a good look at a T-bone by sticking my head up a bull’s ass, but I’d rather take the butchers word for it.” – Tommy
Limiting competition and negotiation power for sellers can often lock you into negotiations with a single buyer before fully exploring other options. This strategy leads to unfavorable terms and a longer process without guaranteed closure on the deal. Private equity firms often apply a large risk discount in private M&A transactions to account for uncertainties and potential downsides associated with the investment. This discount reflects the need for a higher return to compensate for the perceived risks involved in the deal.
Do you remember the famous guarantee line in the movie, Tommy Boy where any idiot can put a sticker on a box? “You can put your head up a bull’s ass, but I’d rather take the butchers word for it.” Similar context in selling your life’s work as a transferable asset. The buyer can guarantee you the moon with an inflated offer sheet. In reality, they were never going to honor the higher price in the first place. All the while, they were going to chisel your ass raw in diligence because you took the bait. We eliminate an entire class of financial buyers utilizing this strategy.
How Competitive Friction Influences Your Case
When multiple qualified buyers want the same company, the seller gains leverage. When there’s only one bidder, the buyer holds the advantage. The subtle deliberate pressure we create when several buyers are simultaneously engaged is one of the most powerful tools in our playbook. It transforms a good sale into a great one, and this dynamic doesn’t happen by accident.
It’s the result of meticulous preparation, structured communication, and disciplined timing. We understand more than the mechanics of competition; it’s the psychology of how the universe of buyers respond to competitive tension. A well-choreographed process compels bidders to act decisively and offer their best price.
Increased Buyer Scrutiny. When several qualified buyers are evaluating a company, they are less likely to anchor low leading to more realistic and serious valuations.
Negotiation Leverage. Sellers gain better leverage in negotiations when multiple interested parties step up to the plate. Buyers cannot demand exclusivity or push for significant discounts without facing consequences.
Price Discovery. A competitive environment enhances price discovery, allowing sellers to achieve better financial outcomes…”Fat guy in a little coat.”
Control. We control the timetable. A structured timeline for evaluations helps maintain competitive tension. We qualify the universe of buyers ensuring only serious buyers are involved. We control and protect the flow of sensitive data managing a buyers desire for premature negotiations.
Competitive friction in private M&A significantly enhances the value of a business being sold. By fostering an environment where multiple buyers are engaged, sellers can improve their negotiating position and achieve better sale outcomes. “Son of a bitch. That’s gonna leave a mark.”
How Does Sell-Side M&A Work?
You are keenly aware of the various reasons in your decision to sell. Our market consists primarily of guys between 55 and 75 who aren’t getting any younger. It’s likely a significant portion of your net worth is tied up in your business, and a partial or full acquisition is a way to liquidate – take some chips off the table. When you step on the field for the first time, you clearly understand why, how and what is required of your final 60 minutes of the game.
For some there is no clear succession or there are internal disputes. Some are without a clear management succession plan and are looking to sell, and there are as many owners of closely held businesses who are in conflict. Another reason could be a strategic rationale. Maybe you’ve taken the business as far as you’re willing to work it or to invest in it based on time and capital. It’s more likely to sustain or grow its competitive advantage if combined with a strategic acquirer. Maybe the business is experiencing a downturn, facing liquidity problems that cannot be resolved on its own through a financial or operating restructuring. A sales process is your best foot forward.
What We Don’t Do
We don’t rep a broad auction designed to maximize the probability of a bid at the highest possible purchase price. Why? Buyers hate them, and in the end, sellers regret them. While a broad auction may maximize purchase price, it will come with strings attached that can cost you millions of dollars in the end. Sure, the wide net invites competing bidders and it also invites unscrupulous ones, too.
It makes it difficult to maintain confidentiality as you must furnish the chum for the sharks. Oops, I mean to say provide potential buyers with enough information to solicit bids. Even though the seller will demand a confidentiality agreement, private information about the seller’s business can and will leak to competitors. What we’ve witnessed is competitors participating in bad faith to gain access to private information about YOU.
As if we haven’t beaten this horse enough, BA’s are time-consuming and disruptive. If you want one, go secure someone else as we’re not interested. At this point in life, we don’t have to chase it to make the mortgage. More bidders means more time you must spend marketing and preparing, which will shift management’s focus from other primary responsibilities. “You better pray to the god of skinny punks that this wind doesn’t pick up, ’cause I’ll come over there, and jam an oar up your ass” that should about cover broad auctions.
We Don’t Limit, We Target
A limited auction is better in comparison to a broad auction for a larger company whose buyer universe is small, i.e. 10-50 potential buyers including both financial and strategic. For obvious reasons, a company with a purchase price of $150MM will deal with a smaller buyer pool than that of a lower middle-market company of $15MM – $50MM. For larger companies, a limited auction is a logical choice for running a formal process. Even for larger cases such as these, we will target the most appropriate buyers in your segment seeking an asset such as yours. It’s efficient, effective and profitable for everyone as time is the most valuable commodity in such cases.
This strategy of ours is why we focus on specific market segments and industries. I’d rather shoot a rifle at 300 yards than a shotgun. Creating a competitive environment among buyers can lead to better economic rewards and a more favorable transaction structure.
We use targeted approaches to create competitive tension in pursuit of better deal value, deal terms, and deal certainty. Our control over the timing and process also allows for planning and deployment of market-specific strategies for potential buyers seeking a platform or add-on opportunity such as your business. The “go-to-market” approach of curating a targeted list of likely best-fit bidders is preferred to exploring many options or possibilities across different buyer profiles.
It’s situation dependent… your mileage may vary. A more narrow outreach preserves confidentiality, reduces disruption, and concentrates management time on the bidders most likely to deliver on price and deal certainty. It also prevents “deal fatigue” and unintended market signaling if the asset is not ultimately sold.
Understand the POV from the buyside perspective as their process objective is to win by the smallest margin possible. Every participant knows this in theory, and there’s gamesmanship and strategy involved in a deal process. A competitive sale process will increase the value of your business in market when multiple buyers are interested in you. Your company presents a challenge for these potential buyers, and by modifying typical behaviors in a controlled timeline, the goal of generating competitive tension influences their behavior and ultimately affects the sales price, terms and certainty to close.
