Broad Auction M&A Processes Should Be More Common

In M&A sell-sides, I've primarily found that deals could have benefitted from going broader.

Should you give my opinion any weight? I’ve worked in investment banking (M&A), private equity, and I’m a repeat founder. Luckily, I’ve also seen some amazing decision-making by other bankers and investors as well. While both auction approaches have their merits, the broad auction is typically the best path. However, there are a small set of circumstances where a limited or tiered buyer list outreach is the right call; I can’t deny that. Let’s dive in.

The Open House Analogy: Why More Buyers Usually Means Better Outcomes

Think about selling a home. Two houses in the same neighborhood have open houses at the same time. One realtor only invites a handful of buyers to view the first property. That homeowner is at a clear disadvantage compared to the other homeowner whose realtor hosts a well-marketed open house with 100+ attendees. The larger pool of interested buyers increases the likelihood of multiple bids and perceived interest in the asset, driving up the price and improving terms.

Similarly, in an M&A process, a broad auction creates an environment where multiple strategic and financial buyers compete, increasing the chances of securing the best possible deal. The first realtor will claim that the quality of buyers invited to view the first property is perfect. So let’s cover buyer quality first.

Buyer Quality: The Hidden Risk of a Limited Process

I can’t overstate the risk of limiting a process and how much value a seller may leave on the table by excluding quality buyers. One of the biggest risks of limiting the buyer pool is overestimating some buyers while missing better-suited ones.

Most bankers are humble enough to recognize their human limitations. With thousands of investors to track, it’s nearly impossible for anyone to maintain more than 100 meaningful relationships, let alone professional ones.

Investment bankers often rely on past relationships, previous deal participants, and familiar names, assuming those buyers are capable. They supplement that shortlist by using platforms like Pitchbook, S&P CapitalIQ, and other databases, while their analysts and associates comb through hundreds of potential buyers’ websites.

This process is time-consuming. Marketing a deal to 15 buyers is simply less work than reaching out to 200. But a limited process risks overlooking emerging strategic acquirers or new financial sponsors who, while unfamiliar, may have a strong appetite for the business.

For example, a private equity firm may have hired a new partner just weeks ago to build out a specific vertical—something the banker might not yet know about.

Top Reasons for a Broad Auction

• Larger Net of Qualified Buyers – When you reach out to more people, there’s a greater chance that you’re bringing in the most qualified buyers. Things change quickly. Dry powder might evaporate. Deal teams get tied up on other deals. Life just happens, even to people who have committed themselves to 80-hour work weeks and intense sacrifice. Buyers may not be the most qualified at all times. So allow yourself to be surprised by others who are ready to pay up when you’re ready to sell.
• More Competition – Increased competition improves the perception of the asset you’re selling. PE folks tend to be competitive so they tend to rise to the occasion and pay up.
• Stronger Negotiating Position – With multiple interested buyers, sellers gain leverage, preventing any single bidder from dictating terms.
• Reduced Deal Risk – Engaging more buyers reduces the risk of a failed transaction. If one buyer drops out, there are others in the pipeline.
• Discovery of the Best Buyer – The highest bidder is not always the best buyer. A broad process helps uncover buyers who may see unique synergies, offer better cultural fits, or have stronger financing.
• Optionality in Deal Structure – A wider pool of bidders increases the likelihood of receiving offers with different structures, giving sellers more flexibility to choose between cash vs. stock considerations, earn-outs, or other deal terms that align with their goals.
• Closing Speed – If there are several cover bids for the asset, usually the winning bidder needs to have a tight (possible 30-45 day confirmatory diligence period). If it’s a less competitive auction, the leading buyer may be able to get away with a 90+ day period.
• The Power of Teamwork – An investment bank may think that a cohort of buyers can’t afford to buy the seller alone. Sometimes buyers punch above their weight and loop in LPs or syndicate with other buyers to pull off larger deals.
• Confidentiality is Unlikely – I’m not saying that no one respects NDAs or joinders (joint agreements), but I am saying that deals get leaked all the time. Lenders will share deals with multiple PE firms to win favor. When I was in PE, I’d seen so many CIMs and inserted our firm into auctions even though we didn’t hear about it from the banker directly. PE firms also share confidential information with operating executives that are connected to competitors. I think the reality is that NDAs are not as respected in the industry as they should be. If you’re limiting buyers because of confidentiality, beware!

When a Limited Buyer List Might Be Appropriate

Despite the clear advantages of a broad auction, there are situations where a limited process makes sense:

• Preemptive Interest from a Strong Buyer – If a highly motivated buyer emerges early in the process with an exceptional offer, a broad auction may not be necessary. They may offer a premium price to specifically avoid an auction. Additionally, deal teams in PE or corporate development generally get “extra credit” for sourcing a “proprietary” deal so they convince themselves that they should pay more to win the deal (even if it has nothing to do with the business’s growth prospects or fundamentals). Individuals within the deal team will then cash in those credits for early promotions or higher bonuses.
• Highly Sensitive Information – If the seller believes that their competitors can execute better than the seller if they the seller’s CIM or take a management meeting, limiting buyer exposure may be necessary. The seller should also seriously worry about how defensible their business is too if it’s that easy to outmaneuver them.
• Regulatory or Strategic Constraints – Some industries, particularly those subject to government oversight, may have restrictions on potential buyers, requiring a more selective process.
• Less Upfront Time – In some cases, sellers don’t want to put together a (big) CIM or go through multiple management meetings. A targeted process can help ensure alignment with these goals. Personally, I think that’s offset by longer diligence periods but the seller can try to negotiate tighter diligence periods as well.
• The Seller Is Huge – First off, great job, seller! It’s lonely on top. If the seller is so big that there are only a few firms that can afford to buy them, then why waste your time showing it to others?

Striking the Right Balance

While exceptions are valid, I think the standard in M&A should be broad auction sale processes. I’ve seen deals increase by 3x EBITDA multiples in the final rounds of hyper-competitive large auctions. I’m sure there are much higher valuation increases happening every year.

In most cases, the more buyers in the room, the better the outcome. Just like in any market, competition fuels better offers. Before opting for a limited process, please carefully weigh whether the seller is warranted in concerns and if the trusted investment banker is actually maximizing their opportunity—or leaving money on the table.

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