Mergers & Acquisitions Auction Process – Guide to M&A Auctions


Can sellers set a reserve price in an M&A auction?

Sellers always have the ability to turn down an offer or set a reserve price. If they don’t deem it to be high enough or with appealing enough structure.

However, an auction process is meant to solicit a number of bids from a variety of investors. If their bids don’t meet the sellers expectations, it is likely that their expectations are too high for where their business sits at that time and that they need to continue to grow the company to achieve a higher valuation.

The difference between a controlled auction and a broad auction is that a controlled auction invites a select group of qualified bidders, allowing for a more targeted approach and fostering competition.

In contrast, a broad auction reaches out to a wider audience, increasing the pool of potential buyers and potentially driving up the sale price.

In addition to having a strong, sellable and growing business, sellers and their M&A advisors will need to create a comprehensive data room and CIM so that all of the potential bidders have enough information to submit an educated bid on the business.

Additionally, using stage gates to make sure all bids are submitted in parallel increases the amount of leverage the seller and their M&A advisors have.

The M&A auction process is a dynamic and strategic methodology used in the selling of middle-market companies (under $100M revenue) or divisions of large companies (over $100M revenue).

In this article, we will define the M&A auction process, its importance, and the benefits of understanding its intricacies. The preeminent goal of running an auction process is to broadly market the business to solicit multiple bids from an array of financial and strategic business buyers and investors. It can vary in format and be tailored to each specific business.

Choosing the Right Auction Type

The success of an M&A auction starts with working with your M&A advisor to select or develop the appropriate auction format. This decision should be based on several factors, including how broadly marketing you want the deal to be and the type of buyers you are soliciting bids from.

Consulting with an experienced M&A advisor can be invaluable in navigating these considerations and developing the most suitable auction format for your specific deal.

There are three main M&A auction formats, each with its strengths and weaknesses. Understanding these formats is crucial for choosing the right auction type based on deal specifics such as confidentiality needs and competition level.

Negotiated Sale:

In this format, your M&A advisor will work directly with one to three prospective buyers to collect their initial bids, give feedback, grant more information on the business to the buyers, collect second rounds of bids (which are typically higher), negotiate the final LOI before it is signed and then move into due diligence.

Controlled Auction:

This format involves inviting a select group of pre-qualified bidders to participate (anywhere from 3 – 20). It is suitable for situations where a high level of control over the auction process is needed and can be particularly effective in attracting buyers who are a strategic fit for the business being sold.

Broad Auction (Most Common):

Unlike the previous two formats, a full-scale/broad auction involves inviting a comprehensive list of investment groups and strategic buyers to participate. This approach generates a wider pool of potential buyers compared to a controlled auction and can be particularly effective in attracting buyers who are a strategic fit for the business being sold. It also fosters greater competition, potentially driving up the final sale price.

Merger and Acquisition Auction Process: A Step-by-Step Guide

  • Preparation:

This initial phase involves compiling all of the pertinent business information such as contracts, financials, employee records, etc. It involves creating a compelling teaser and detailed information memorandums (CIMs)  that highlight the business’s strengths and potential for growth.

Your M&A advisor will compile this documentation into a data room and create a CIM to market the business. It sets the groundwork for a successful auction. This fundamental stage is all about preparing all necessary documentation, such as financial statements and legal papers.

This phase sets the foundation for the auction by ensuring that once we go to market, all of the potential buyers have access to the essential information needed to make informed preliminary bids. Additionally, preparation involves assembling a team of skilled advisors and consultants, including your M&A Broker.

  • Marketing and Outreach:

After preparation and compiling a full data room and CIM, the next step is for your M&A team to actively market the business to potential buyers. Effective marketing not only sparks interest but can also widen the pool of potential buyers.

Special attention should be given to targeting the right segments of buyers who are most likely to be interested in the specific business up for sale, thus increasing the likelihood of competitive bids.

  • Initial bid Submission:

In this phase, interested parties submit their first preliminary bids, known as indications of interest (IOIs). These IOIs serve as an initial expression of interest in the acquisition and are usually given in a range of terms and valuation.

From these IOIs, finalists are selected and allowed to meet the sellers in person for a half-day meeting (management meetings). Following these meetings, the finalists submit formal Letters of Intent (LOIs), outlining their proposed terms and conditions for the acquisition.

Providing clear guidelines and transparency about the process at this stage can increase trust and participation from potential buyers, leading to more competitive bidding.

  • LOI Negotiations:

Before executing an LOI, the M&A advisor will work to negotiate more favorable terms with the best-fit buyer.

Being as though this buyer has already been through multiple rounds of bidding, seen a CIM and data room, met the management team and submitted a final LOI, there are typically only a few items that need to be negotiated further at this stage.

Effective negotiation tactics and a clear understanding of both parties’ objectives can lead to a mutually beneficial agreement. The M&A advisor will leverage the competition of having multiple buyers and the insights gained from the bidding process to maximize the sale terms.

  • Due Diligence:

Once a Letter of Intent (LOI) has been signed, the selected buyer will start to conduct due diligence to verify the business’s details.

This is a critical step where buyers scrutinize the business to verify its financials, legal standings, and operational efficiencies. Effective due diligence reduces the risks associated with the acquisition.

Once they complete due diligence they will present a purchase and sale agreement to the seller(s), their M&A advisor and their attorney. It is common for there then to be multiple turns of that agreement back and forth before one it is agreed upon and executed by all parties.

  • Closing:

The deal is finalized and the transaction is done. The buyer wires the closing payment from themselves and their debt and equity investors to an escrow agent who then wires the funds to the seller(s).

It is also common for a purchase and sale agreement to include a transition period where the seller(s) continue to operate the business for an agreed-upon period after the deal has been closed. This means that although the seller has been paid for the deal, they must fulfill further obligations to the seller.

Related Content

The majority of companies we represent in M&A auctions are in the lower middle-market. Learn more about the lower middle market industries and segments that have success with auctions in that article.

Key Considerations in the M&A Auction Process

When navigating an M&A auction, strategic considerations are vital. A skilled M&A advisor conducts this process several times per year and will be able to oversee this process.

  • Valuation and Expectation Setting: Accurate valuation of the business is essential. Middle-market firms need to set realistic expectations based on a deep understanding of their market value, economic conditions, and potential buyer interest.
  • Bid Structure and Process: The structure of the auction (whether it’s a negotiated deal, controlled auction, open auction, or another format) and the clarity of the bidding process are essential to attract competitive bids. Clear communication regarding timelines, bid formats, what information must be included in a bid, and decision criteria is necessary to manage this process efficiently.
  • Advisory and Expertise: Engaging experienced advisors, such as M&A advisors, financial advisors, Tax attorneys, and M&A attorneys can provide the necessary guidance and expertise throughout the auction process and tax efficiency for the deal proceeds. This is especially important for middle-market firms that typically do not have experience in M&A or pre-existing relationships with advisors.

Success Factors for M&A Auctions

Successful M&A auctions hinge on several important factors which include:

  • A Transparent and Well-Structured Process: A clearly defined auction process with a detailed data room, transparent guidance for bidders, and a well-structured submission process is crucial for attracting high-quality bids. This includes providing clear guidelines for IOIs, due diligence access, and final LOI submissions.
  • Targeted Marketing and Buyer Selection: Identifying and marketing to the right pool of potential buyers is essential. Effective marketing strategies that target companies with a strategic interest in the target’s assets or industry can lead to a more competitive bidding process.
  • Effective Management Meeting and Negotiations: A smooth and efficient management meeting process allows shortlisted buyers to allow them to fully and effectively assess the target company. From there, any potential problems that may arise during diligence can be negotiated ahead of executing an LOI.

Common Pitfalls to Avoid in an M&A Auction Process

A skilled M&A advisory team will be able to guide management teams through the nuances of an auction process. Some of the pitfalls that they will help business owners in avoiding are:

  • Underestimating the Preparation Required: Middle market companies often do not have the same level of resources as larger firms to dedicate to the preparation phase of a sale. Underestimating the time, effort, and expertise needed to see out an auction process will limit the results
  • Failing to Identify the Right Buyers: Not all buyers are suitable for every sale. Middle-market sellers and their M&A advisors must identify and engage buyers who not only have the financial capacity but also strategic reasons to buy the business. A well-defined integration plan is important to avoid operational disruptions and to achieve the intended benefits of the merger.
  • Inadequate Professional Support: Middle-market sellers sometimes try to save costs by limiting their use of external advisors. However, it would be nearly impossible to orchestrate an auction without skilled representation. Professionals such as M&A advisors play a critical role in preparing a data room, selecting the right investment groups to market the deal to, giving structure guidance, etc. Choosing the right advisors who understand the nuances of the middle market can make a significant difference.



Mastering the M&A auction process requires a blend of expertise, foresight, and adaptability. By incorporating the lessons learned and recommendations provided in this article, individuals and organizations can position themselves for success in the dynamic world of mergers and acquisitions. When in doubt, our expert M&A Brokers and M&A Advisors are available to help see you through your M&A plans.