When you’re selling a business, a few sneaky tricks can be used to create that competitive tension which ensures the price stays higher.
The main goal is to make a buyer believe there are others interested in buying even when there aren’t.
And there are several ways to do this, according to a group of experts who spoke today at an event, Dealmakers ANZ, by Intralinks Dealspace which creates virtual data rooms for due diligence.
Matthew Millar, managing director of PwC’s Mergers and Acquisitions, said with a smile: “I’m a bit sneaky.”
Sometimes you need to be creative, he says.
“Certainly in private transactions the key is to get more buyers and if you don’t have more buyers you create the illusion of more buyers,” he said.
- Make it known that the seller is also considering an IPO (Initial Public Offering) or a private equity transaction. Or make sure the buyer knows you have a meeting with a private equity firm.
- During the due diligence process, release information that the potential buyer didn’t ask for. This makes them believe there are other buyers.
- Put out of office notifications on your email for a few days. This makes them think you’re travelling to see another buyer. “If it’s a mining services deal, you say you’ll be in a remote location for a few days without access to email.”
Charles Graham, managing director at Gresham Partners, also likes the tactic of providing information a buyer hasn’t asked for.
“If you’re down in the process to just one party, additional information may also be posted to the data room that’s helpful information but not directly answering a question raised by that specific buyer,” he says.
Leaking to the media can be effective, making a potential buyer think others are looking at the same acquisition and that the price is going up.
But this is frowned on. The advisory companies at the Intralinks briefing have policies of not leaking to the media. For most, this was cause for dismissal.
Bruce MacDiarmid, co-head of Rothschild Australia, says: “Australia is by far the leakiest market I’ve ever worked in. We’ve got a lot of financial journalists for this size market so I think there’s a culture of getting information out in the press. I also think there are unintentional leaks and journalists are very good at putting bits and pieces together and coming up with a hypothesis.”
Some companies are starting to get heavy about media leaks, demanding that anyone involved in due diligence sign a confidentiality agreement and take personal responsibility.
Charles Graham at Gresham says: “I agree that some leaks are intentional and typically they comes with the line: an informed source or a person close to the transaction. If a story has those words you can be confident that the facts are right and that the story is placed there because of some tactical intention.”
Bruce MacDiarmid at Rothschild Australia also believes sellers should be extremely careful when deciding on which questions to answer from a potential buyer.
He had one vendor which responded to every request made by the purchaser, the only potential buyer at that time.
“They did not want to so ‘No’ to anything and it was a clear representation of their desperation,” MacDiarmid says.
“As it turned out this transaction went on and on and this purchaser kept on asking for more and reduced the deal terms because the vendor gave in on everything.
“You’ve got to draw a line in the sand at one point. You’ve got to play the bluff because if you don’t you will quite often go down a path and look back and say: ‘If we’d known we’d get here when we started out we wouldn’t have done the deal’.”