If you’re trying to sell a company there are two basic but opposite approaches. In one, you approach the best buyer, negotiate exclusively, and generally do what you can to get them to put their best foot forward in exchange for not having the headache of a multi-round, winner’s-cursed, might-get-topped-by-a-penny auction. In the other, you just run the auction and hope for the winner to get cursed, at the risk that the best bidders won’t play, or won’t bid aggressively, because they’ve been here before and understand the dynamic. There’s no approach that is just a priori right; you have long heart-to-hearts with your banker and look at unilluminating comp sets and feel out your best-bet bidders and then sort of take a guess about what’s the right thing to do.

There is an asymmetry here, though: if you do the exclusive approach, you get lots and lots of sued, because think of all the people you could have asked to bid but didn’t (and scared away with breakup fees or whatever). If you do the auction approach, you’re less likely to get sued, because it’s harder to think of all the people who you did ask to bid but who refused because they didn’t want to be winner’s-cursed. The fact that negotiated deals still happen is a testament either to boards’ and bankers’ commitment to shareholder value, or to the fact that those negotiated deals really are as conflicted as plaintiffs’ lawyers say they are and the boards and bankers are pursuing their own selfish agendas.

Anyway LBOs are back: Read more »