Apologies if this is a dumb question but in a m&a bid, does the highest bidder always win? For example, the seller may think the third highest bidder is higher value based on different equity structure of the deal and perceived value of the proforma entity ? Appreciate any help.
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Lots of components. If it's a 100% sale and management won't be retained, they'll probably go with the highest bidder unless they really care about the business going forward (although no financial ties). Sometimes management and owners would prefer to stay on and hold a minority stake or lesser role while a PE firm drives value. This may outweigh an up front larger bid. Still tons of other reasons, but I think psychology and potential upside plays into it a lot.
would love to hear others' thoughts too
Still at uni with no IB experience, but have heard from various professionals that the seller also takes buyers ability to pay into consideration.
Some other things that come to mind are: whether sellers (if not selling 100% of company) like the management team that buyer wants to bring on board, or how much they believe in the strategy buyer plans on pursuing; and sellers (again when not selling 100% of company) may also look at proportion of debt/equity used to finance bid in an LBO since saddling the target with too much debt may be a problem
The RJR Nabisco case is interesting as the 3rd highest bidder won and some of these factors come into play, there was also something called a reset provision but I'm just learning about it now – would love to hear an explanation if someone understands it well
Depends on the structure of the bid.
Earnouts and Contingencies.
And of course, consideration-> all stock purchase in useless equity can be a nightmare deal regardless of the size. (ie AOL Time Warner)
I’m in PE. We bid 15-20% higher than the second highest bidder but didn’t win due to antitrust concerns with how we were merging it in into a PortCo. Pretty large industrials company. 9 months of my life wasted.
Not always. Other considerations could be: certainty to close, diligence process, rollover requirements, management expectations going forward or even just how well the seller gets along with buyer at meetings / dinners. Value and certainty to close are the 2 biggest from what I’ve seen though
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