M&A Auctions:

Successful Bidding Strategies Planning and Executing Winning Bids, Minimizing Costs of Losing Bids

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THURSDAY, JANUARY 8, 2015

Presenting a live 90-minute webinar with interactive Q&A

Robert C. Hussle, Partner, Rogers & Hardin, Atlanta

Christopher J. Voss, Partner, Stoel Rives, Seattle

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Aiming For Victory &

Protected In Defeat

Presented By: Robert C. Hussle

and C.J. Voss

Successful Bidding Strategies for

Bidders in M&A Auctions 5

Pros and Cons from Seller’s Perspective 6

Key Advantages • Reach more potential buyers • Competitive process should maximize price and result in more

favorable deal terms • More control over process, timing, and transaction documents • Market check for directors Key Disadvantages • Higher cost • Multiple bidder auction generally more disruptive to business

operations than negotiated transaction • More difficult to maintain confidentiality of process to employees • Competitive risk from bidders who are not serious • Adverse “market” perceptions if process is unsuccessful

M&A Auction Process Seller’s Perspective 7

• Hire an investment banker • Banker contacts potential buyers • Confidentiality agreements with potential bidders • Seller and banker prepare Confidential Information

Memorandum • Perform internal due diligence and create virtual data room • Management presentations

• Seller distributes bid package – CIM, form purchase agreement and bid instructions

• Buyers submit “bids” • Seller analyzes bids and ranks them • Seller commences negotiations with short-listed bidders • Seller ultimately enters into definitive agreement with single

bidder

Typical Bid Instructions 8

• Mark up purchase agreement rather than sending an issues list

• Significant changes are unwelcome

• Submit your “binding” offer

• Identify any impediments to closing

• Reply by a set date and time

Seller’s Goals in Auction 9

• Create real or apparent competitive market for unique/ scarce asset

• Obtain highest purchase price

• Secure favorable deal terms with limited post-closing indemnity or other obligations

• Provide certainty of closing

Seller Ranks Bids 10

• Price

• Timing

• Indemnity terms

• Other key factors/conditions and “structure” risk

• Reputation/integrity of bidder

Seller Ranks Bids - Example 11

Bidder’s Objectives 12

• Confirm pricing/valuation

• Build credibility with seller and its advisors

• Identify synergies

• Identify risks and obstacles

• Ultimately, win the bid

• Minimize the cost of bidding (particularly if losing) – financial and management time and attention

Successful Bidder Strategies 13

• Play by the rules

• Due diligence

• Focus on real issues

• Be a serious bidder

• Money talks

• Bid in the alternative

• Provide certainty

• Assess and use shifting deal leverage

Play by the Rules 14

Conform bid to bid instructions to the greatest extent possible

Mark up the purchase agreement, but don’t over do it – “market terms for market price”

Due Diligence 15

Undertake a serious due diligence effort

Devote sufficient resources to review the documents posted in the virtual data room to:

identify genuine business issues

validate your valuation

understand working capital requirements

identify synergies

demonstrate seriousness of bidder

Focus on Real Issues 16

Address real (rather than theoretical) issues in mark-up of purchase agreement

For example, if the diligence reveals an asbestos-related environmental issue in one of the seller’s plants, tailor the mark-up to address that issue and not all manner of environmental concerns

Avoid seeing ghosts

Be a Serious Bidder 17

Don’t bid if you aren’t serious – a low-ball bid rarely succeeds in winning the bid for a valuable asset

Demonstrate your interest by your actions – assemble deal team, attend management presentation and make site visits, spend time in the virtual data room, engage with the bankers and provide a thorough mark-up of the purchase agreement

Know your reputation as a buyer: Do you get deals done? Do you “re-trade” deals? Are you litigious?

Money Talks 18

The highest bid almost always wins the bid

Understand the process: bidders will be asked to bid more until they say “no”

Consider bidding in a range to get to the next round but save some powder for the last push by the seller

Bid in the Alternative 19

If you don’t like the seller’s proposed sale terms, give the seller an alternative

For example, if the seller insists on a 12-month survival period, then formulate your bid based on that survival but also bid on the basis of an extended survival period

Provide Certainty 20

Sellers want to know the deal they sign will close and they won’t have to return the purchase price through indemnity

Don’t add third-party conditions – address through covenants if workable

Be creative on indemnity – can rep and warranty insurance bridge any gap in coverage?

Assess and Use Shifting Deal Leverage 21

As bidders drop out of later rounds, the leverage of the remaining bidders begins to increase and the continued bidding confers a benefit on the seller

Sellers and their bankers will work hard to maintain the dynamics of a competitive market

If appropriate, a bidder in “second” place may seek an expense reimbursement from the seller for staying in the auction

Bob Hussle: Rhussle@rh-law.com 404.420.4633 C.J. Voss: cj.voss@stoel.com 206.386.7505

Successful Bidding Strategies for Bidders in M&A Auctions

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