We are considering an unsolicited offer from an industry aggregator who claims they can close in 45 days, but our M&A advisor wants to run a formal auction with financial sponsors. How does a proprietary bilateral negotiation compare to a competitive process in terms of final realized valuation?

Question

Tyler Smith · Accepted Answer

Proprietary bilateral deals offer speed, discretion, and minimal disruption to your leadership team. Aggregators pitching a forty-five-day close play directly to an owner exhaustion. However, proprietary deals almost always leave substantial money on the table, not just on the headline multiple, but across deal terms, escrow sizes, and working capital targets.

Without competitive tension, you have zero leverage. When an aggregator knows they are the only party at the table, their initial high-multiple LOI is frequently eroded during confirmatory diligence through aggressive quality of earnings adjustments and rep-and-warranty demands. Because you have no alternative bids to fall back on, walking away becomes emotionally difficult after investing months of effort.

A structured auction managed by an investment banker or M&A advisor introduces market discovery. When financial sponsors and strategic buyers compete, two things happen. First, the EBITDA multiple expands because buyers must submit their best economic model to survive the initial bidding round. Second, the deal terms become seller-favorable. Buyers drop punitive indemnity escrows, agree to lower rollover requirements, and accept tighter working capital collars to win the mandate.

The downside of a formal auction is operational fatigue. Managing dozens of management presentations while running your quarterly EOS® rhythm puts immense pressure on your Accountability Chart.

If your adjusted EBITDA is above $3 million and your systems are institutionalized, a competitive process consistently generates a 15 to 30 percent higher net cash yield. If you choose a bilateral deal, never grant exclusivity without a fully baked valuation peg, firm debt commitments, and strict diligence parameters.