We have all heard this phrase at an auction. And have you ever paid more for an item at an auction than you could have paid for the same item in a store?
You can buy everything from old farm equipment to fine art at auctions. Auctions tap into more than just our pocketbook. They are emotional. People get excited about being able to buy something that someone else also wants. It’s good ole fashioned competition!
However, most business owners do not realize that a silent auction can be the best way to maximize the value of your company when you sell. Experienced investment bankers know how to tap into the potential of an auction-style sale to boost a company’s price and secure better terms. They know how to get prospective buyers tuned up, turned on and excited about the opportunity to acquire the business.
When the auction begins, the buyer realizes right away that there are other buyers at the table. Typically, he doesn’t like to see others bidding on the company. However, it confirms his belief that the company is a real opportunity.
Now, the dynamics of the sale shift. The buyer’s mindset goes from “opportunity to gain” to “fear of loss.” This drives buyers to raise their bids. The buyers are convinced that the opportunity for gain is real. Yet, fear of loss drives them to increase their bids to try to keep the company out of competitors' hands.
Five factors are at work during an auction. Together, I like to call them the auction effect:
Competition
In today’s business world, nobody likes to lose. Everyone wants to win! A lone buyer looking to buy your fleet does not feel any competitive pressure. They are the only game in town. They can offer whatever they feel your fleet is worth, and you have nothing with which to compare the offer.
However, when you have multiple potential buyers, all wanting to buy your fleet, they feel the competition. You have other offers to consider. The price goes up! Auctions provide built-in competition for your fleet.
Enhanced buyer perception
The true value of a fleet is not always determined by the assets or by its performance. The true value of a fleet is what a buyer is willing to pay based upon their perceived value of the fleet. This has been proven over and over as billions have been spent on internet companies that have yet to make a dime in profit. The buyer’s perceived value defies normal business rules.
A single buyer values a company based upon the value they see. During an auction, multiple buyers are looking at the company, and each has a different perceived value. A strategic/corporate buyer may see the company as the perfect strategic fit. A financial/private equity buyer may see the same company as less attractive, because its potential ROI is not ideal, but still very attractive.
When you multiply the number of buyers, the perceived value is enhanced. Each potential buyer sees the company in a different light, yet must compete with others to win. The perceived value increases.
Time pressure
There are no time constraints on a fleet being sold without an auction. No deadlines, no pressure. If you only have one potential buyer, they don’t feel any pressure to increase their offer or negotiate. They can just wait around until you accept their offer.
An auction is different. It has a definite ending. Bidders know they are competing for your fleet and if they want to win, they have to present timely offers. They never know when you may agree to accept another offer, and they don’t want to miss the opportunity. Bids go up-- values go up!
External validation
Often buyers need to know that others see the potential value of your fleet before they will make a serious offer. An auction provides ongoing external validation that your fleet is attractive and that the offers are realistic, based upon what others are willing to pay.
Fear of loss
Potential buyers have a vested interest in your fleet. They want to purchase it. They have done their homework. They have determined that this is the best fleet of its type for sale at this time. Otherwise, they would simply wait and buy the next one.
During an auction, buyers may fear that if they lose the auction, they may not get another chance to purchase a fleet like this one. This fear drives buyers to increase their offers or negotiate better terms.
Not only does an auction help to enhance fleet values, it also provides the seller with more negotiating power. The seller can work with potential buyers to craft the perfect offer that more closely meets both their financial and personal goals.
Before your fleet is going-going-gone, make sure you investigate an auction-styled sale. It can ensure you get the best deal before the gavel drops.
