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Mastering the Art of M&A Auctions: A Guide to Different Auction Process and their Pros and Cons - Zachary Cefaratti Opinion

Dalma Capital

19 March 2023

By Zachary Cefaratti

When the seller decides to follow an auction process in mergers and acquisitions (M&A), it is pivotal to structure the auction appropriately. Auctions facilitate competitive bidding, helping sellers maximize value for their business. In this article, I will share the most common types of auction processes used in M&A transactions, the advantages and disadvantages of each, and the factors to consider when deciding which approach to take.

Types of Auction Process in M&A

Broad Auction

A broad auction is an M&A process where multiple potential buyers are invited to participate in bidding for the target company. This process typically starts with a large pool of potential buyers who are provided with an information memorandum. After expressing their interest, the pool is narrowed down through multiple bidding rounds until a winning bidder is selected.


  • Higher competition among bidders can lead to a higher selling price.
  • Sellers have the opportunity to gauge the interest of a wide range of potential buyers.
  • The process can create a sense of urgency among bidders, potentially accelerating the transaction timeline.


  • The process can be time-consuming and resource-intensive, as sellers and their advisors must manage multiple bidders.
  • Confidentiality risks may arise due to the larger number of bidders involved.
  • Bidders may experience auction fatigue, leading to a potential drop-off in interest or reduced valuations.

Targeted Auction

In a targeted auction, a select group of potential buyers is invited to participate in the bidding process. These buyers are typically chosen based on their strategic fit, financial capacity, and likelihood of closing a deal. The process often involves fewer bidding rounds than a broad auction.


  • A more efficient process, as fewer bidders are involved.
  • Greater control over the confidentiality of the transaction.
  • The targeted selection of bidders can increase the likelihood of a successful transaction.


  • Potentially lower competition among bidders compared to a broad auction.
  • Sellers may miss out on potential interest from buyers outside the targeted group.

Two-Stage Auction

A two-stage auction is a hybrid approach that combines elements of both broad and targeted auctions. The process begins with a broad auction, and after the initial round of bids, a smaller group of bidders is invited to participate in a targeted auction.


  • Sellers can benefit from the competitive dynamics of a broad auction while maintaining the efficiency of a targeted auction.
  • The two-stage approach allows sellers to adjust their strategy as the auction progresses.


  • This approach can be more complex and time-consuming than a single-stage auction.
  • Confidentiality risks may still arise during the initial broad auction stage.

Considerations for Choosing the Right Auction Process

I nearly always prefer a two-stage auction. Even a two stage auction can be targeted in the first phase to deal with confidentiality, and it is the job of a good advisor to manage the additional complexities and time needed for a two-stage auction.

Other factors that need to be considered in how to structure the auction include:

  • Market conditions: The choice of auction process may be influenced by the state of the market and industry dynamics, with broader auctions being more suitable in a seller’s market.
  • Confidentiality requirements: If maintaining confidentiality is a priority, a targeted auction may be more appropriate.
  • Transaction timeline: If time is of the essence, a targeted auction or a two-stage auction may be more efficient than a broad auction.
  • Buyer universe: The number and diversity of potential buyers in the market should be considered when choosing an auction process. A broad auction may be more suitable when there is a large pool of potential buyers.

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