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Value Creation Blog

3 Reasons Financial Service Firms Should Use A Controlled Auction - Exit Planning

Posted by Josh Patrick

Controlled AuctionI was recently at a meeting where the topic was selling a financial services firm.  The presenter had a fact that I thought was very interesting.  For every financial services business that is for sale, there are 43 buyers.

Even if this number is off by 50%, this is still an extraordinary statistic.  It also bodes well for sellers who have a good strategy and intermediary working with them to help sell their business.

For those businesses that are worth more than one million dollars my belief is that the only way to sell a financial services business is through a controlled auction.  This is where your intermediary helps put together a small (3 to 5) group of companies you’ll allow bid for your company.

Some of the reasons a controlled auction makes sense is:

You will get more money for your business.  Because there is competition for your business you are likely to get a higher price for your business.  When you negotiate with one buyer, the buyer stays in the driver seat.  Having multiple buyers where they all know there are others interested often increases the sale price you’ll receive.

You will have more control over the terms of the sale.  At the same seminar the presenter said that about 80% of the sales price with a financial services firm is deferred.  Having a controlled auction could increase the amount of cash you get at closing.

You will have more control over the short-term behavior of the buyer.  With multiple buyers bidding on your business you might have a chance of controlling employment contracts and client service standards for at least a period of time.  Buyers often will not be truthful about what their plans are for your business.  A controlled auction process might allow you to potentially have some post closing control over your buyer.

It appears financial service businesses are very saleable.  Allowing yourself to get tied up with only one buyer is not in your best interest.  If you’re ready to sell your business make sure you find an intermediary who understands a controlled auction process and is skilled in using this sales strategy.

I’m interested in hearing your thoughts on a controlled auction.

Josh Patrick

Get your complementary Exit Planning Assessment to assess the 18 key areas a buyer would look at in your business.  You will have a call with no charge as well as a report that outlines a projected value of your business, the gap you could fill and strong and weak parts of your business. This assessment and report just might help you stay out of the need to do an earnout when you sell your business.  Click on the button below to start the Exit Planning Assessment process.


Securities and Investment Advisory Services offered through NFP Securities, Inc. (NFPSI), Member FINRA/SIPC. Stage 2 Planning Partners and NFPSI are not affiliated.

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Topics: value creation, exit planning, business exit planning, value enhancement, controlled auction

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