Ch 3 Deck 1 Flashcards
Three general sale side processes to sell a business
negotiated sale
targeted auction
broad auction
investment banker contacts the most likely buyer and negotiates with that buyer only
negotiated sale
this sell-side method is used when there is a strategic buyer who expects synergies from the business combination
negotiated sale
advantages of negotiated sale
confidentiality
minimum disruption to business
generally faster
disadvantages of negotiated sale
seller usually does not get the best possible offer because of lack of competition.
investment banker contacts a limited number of likely buyers (typically two to seven)
targeted auction
advantages of targeted auction
minimum disruption to the business
generally quicker than broader auction methods
offer tends to be better than a negotiated sale because of the increased competition.
investment banker contacts a larger group of potential buyers (usually over 10)
broad auction
Advantages of broad auction
offer tends to be higher because of the large range of possible buyers and the increased competition.
disadvantages of broad auction
confidentiality rarely maintained
target business often disrupted
reduction in an asset or investment
divestiture
company is looking to sell a portion of the business
spin-off
Major tax advantage of spinoff is
A spin-off can be made tax-free to the parent
To take advantage of a tax-free spin-off, a company must be
in business for at least five years
To take advantage of a tax-free spin-off, the SEC requires a company to submit
three years of audited financials