Case studyTechniqueDeals and M&AIncentives
An auction is won on certainty and speed as often as on price
The idea
The book of the RJR Nabisco buyout is the best account of how a competitive auction actually runs. The highest number did not simply win. The board weighed which bidder could finance the deal, which could close fastest, which carried the least risk of renegotiating after signing, and what each adviser's fee structure was quietly pushing them to recommend. A seller's question is not what is the best price but what is the best price I will actually receive, and a bidder who understands that can win with a lower number and better terms.
A seller sells certainty of closing as much as price; a bidder who offers more of it can pay less.
When it works
M&A process questions, sell-side mandates, and any private equity interview about how to win a deal.
When it may fail
Certainty is worth less to a seller who has several equally certain bidders, and the history of the deal shows how adviser incentives can distort the weighing. The book is also a 1980s story; financing certainty is more standard now.
How to use it
In a case about bidding, list what the seller fears: financing falling through, a long regulatory wait, a price chip in diligence. Then show how your structure removes each fear, and what that lets you take off the headline price.
Where it came from
Book Barbarians at the Gate · Bryan Burrough and John Helyar
What the source says. The RJR Nabisco buyout in full: the best account of how a competitive auction runs and what fee structures quietly do to advice.
Connected ideas
Worth knowing first
A management buyout puts the seller on both sides of the tableIn a management buyout the insider is the buyer, so the board's job is to make the market, not take the offer.
Puts it to work
Follow the fee before you follow the adviceBefore weighing advice, work out how the adviser is paid and what that pays them to say.
Concepts
Put it to work on L3VLUP
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