M&A Auctions: Successful Bidding Strategies Planning and - - PowerPoint PPT Presentation

M&A Auctions: Successful Bidding Strategies

Planning and Executing Winning Bids, Minimizing Costs of Losing Bids

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THURSDAY, JANUARY 8, 2015

Presenting a live 90-minute webinar with interactive Q&A Robert C. Hussle, Partner, Rogers & Hardin, Atlanta Christopher J. Voss, Partner, Stoel Rives, Seattle

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Aiming For Victory & Protected In Defeat

Presented By: Robert C. Hussle and C.J. Voss

Successful Bidding Strategies for Bidders in M&A Auctions

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Pros and Cons from Seller’s Perspective

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 Key Advantages

• Reach more potential buyers
• Competitive process should maximize price and result in more

favorable deal terms

• More control over process, timing, and transaction documents
• Market check for directors

 Key Disadvantages

• Higher cost
• Multiple bidder auction generally more disruptive to business
• perations than negotiated transaction
• More difficult to maintain confidentiality of process to employees
• Competitive risk from bidders who are not serious
• Adverse “market” perceptions if process is unsuccessful

M&A Auction Process Seller’s Perspective

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• Hire an investment banker
• Banker contacts potential buyers
• Confidentiality agreements with potential bidders
• Seller and banker prepare Confidential Information

Memorandum

• Perform internal due diligence and create virtual data room
• Management presentations
• Seller distributes bid package – CIM, form purchase

agreement and bid instructions

• Buyers submit “bids”
• Seller analyzes bids and ranks them
• Seller commences negotiations with short-listed bidders
• Seller ultimately enters into definitive agreement with single

bidder

Typical Bid Instructions

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• Mark up purchase agreement rather than sending an issues

list

• Significant changes are unwelcome
• Submit your “binding” offer
• Identify any impediments to closing
• Reply by a set date and time

Seller’s Goals in Auction

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• Create real or apparent competitive market for unique/

scarce asset

• Obtain highest purchase price
• Secure favorable deal terms with limited post-closing

indemnity or other obligations

• Provide certainty of closing

Seller Ranks Bids

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• Price
• Timing
• Indemnity terms
• Other key factors/conditions and “structure” risk
• Reputation/integrity of bidder

Seller Ranks Bids - Example

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Bidder’s Objectives

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• Confirm pricing/valuation
• Build credibility with seller and its advisors
• Identify synergies
• Identify risks and obstacles
• Ultimately, win the bid
• Minimize the cost of bidding (particularly if losing) –

financial and management time and attention

Successful Bidder Strategies

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• Play by the rules
• Due diligence
• Focus on real issues
• Be a serious bidder
• Money talks
• Bid in the alternative
• Provide certainty
• Assess and use shifting deal leverage

Play by the Rules

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 Conform bid to bid instructions to the greatest extent

possible

 Mark up the purchase agreement, but don’t over do

it – “market terms for market price”

Due Diligence

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 Undertake a serious due diligence effort  Devote sufficient resources to review the documents

posted in the virtual data room to:

 identify genuine business issues  validate your valuation  understand working capital requirements  identify synergies  demonstrate seriousness of bidder

Focus on Real Issues

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 Address real (rather than theoretical) issues in mark-

up of purchase agreement

 For example, if the diligence reveals an asbestos-

related environmental issue in one of the seller’s plants, tailor the mark-up to address that issue and not all manner of environmental concerns

 Avoid seeing ghosts

Be a Serious Bidder

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 Don’t bid if you aren’t serious – a low-ball bid rarely

succeeds in winning the bid for a valuable asset

 Demonstrate your interest by your actions –

assemble deal team, attend management presentation and make site visits, spend time in the virtual data room, engage with the bankers and provide a thorough mark-up of the purchase agreement

 Know your reputation as a buyer: Do you get deals

done? Do you “re-trade” deals? Are you litigious?

Money Talks

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 The highest bid almost always wins the bid  Understand the process: bidders will be asked to bid

more until they say “no”

 Consider bidding in a range to get to the next round

but save some powder for the last push by the seller

Bid in the Alternative

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 If you don’t like the seller’s proposed sale terms, give

the seller an alternative

 For example, if the seller insists on a 12-month

survival period, then formulate your bid based on that survival but also bid on the basis of an extended survival period

Provide Certainty

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 Sellers want to know the deal they sign will close and

they won’t have to return the purchase price through indemnity

 Don’t add third-party conditions – address through

covenants if workable

 Be creative on indemnity – can rep and warranty

insurance bridge any gap in coverage?

Assess and Use Shifting Deal Leverage

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 As bidders drop out of later rounds, the leverage of

the remaining bidders begins to increase and the continued bidding confers a benefit on the seller

 Sellers and their bankers will work hard to maintain

the dynamics of a competitive market

 If appropriate, a bidder in “second” place may seek

an expense reimbursement from the seller for staying in the auction

Bob Hussle: Rhussle@rh-law.com 404.420.4633 C.J. Voss: cj.voss@stoel.com 206.386.7505

Successful Bidding Strategies for Bidders in M&A Auctions

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