Competitive Auction Processes in a Slowing Market: Strategic Tool or Waste of Time for Sellers?

Authors: Marie-Claire Brossoit & Claudia Leancu

In a slowing market, every strategic decision matters
In today’s environment, where transactional activity in Québec is declining due to economic uncertainty—rising interest rates, heightened caution from financial institutions, and more volatile valuations—many SME owners considering a sale are asking themselves: should they structure a competitive auction process, or opt for a negotiated (one-on-one) sale?

This question is especially relevant in the mid-market segment, where resources are limited but valuation and continuity are critical. While auctions may seem risky or time-consuming in a cautious market, they remain a powerful strategic lever when well-planned and tailored to the context.

When is an auction process appropriate?
An auction process is not suitable for all companies or all situations. That said, there are conditions under which it can be justified—even in a downturn:

• The company is well-positioned in its market, with a stable customer base, recurring revenues, or an in-demand specialization;
• Several types of buyers can be identified: strategic, financial, regional, or international;
• The seller is well-prepared, both operationally and legally, and has clearly defined objectives.

In such cases, a competitive process can help stimulate buyer interest and lead to a stronger final offer.

Structuring an auction process to maximize value
The lawyer plays a central role in managing an auction process: protecting the seller’s interests, ensuring confidentiality, and handling multiple negotiations. Key steps include:

1. Strategic Preparation
   • Legal and financial clean-up (internal due diligence),
   • Defining selection criteria,
   • Drafting marketing materials (teaser and confidential information memorandum).
2. Solicitation and Expressions of Interest
   • Reaching out to pre-identified buyers,
   • Executing confidentiality and non-disclosure agreements,
   • Receiving and analyzing letters of interest.
3. Negotiation with Finalists
   • Creating a virtual data room,
   • Clarifying key legal issues: deal structure, reps and warranties, earn-out provisions,
   • Receiving and evaluating final offers.
4. Signing and Closing
   • Drafting and negotiating the purchase agreement,
   • Coordinating closing with other advisors (accountants, tax specialists, bankers).

Representing the seller: the importance of strategic legal guidance
In a competitive process, the seller must remain in control while managing increased transactional pressure. Rigorous legal representation helps to:

• Ensure fairness between bidders while highlighting the company’s strengths;
• Identify and mitigate risk areas (warranties, post-transaction liability);
• Ensure decisions at each stage align with the seller’s broader goals—whether financial, human, or governance-related.

Conclusion: A proactive approach pays off, even in a cautious market
In a slower market, auction processes may seem ambitious. However, for well-prepared sellers, they offer an opportunity to optimize valuation, secure the transaction, and select a successor based on defined criteria.

Rather than being a waste of time, a well-structured auction becomes a true strategic tool—provided the seller is well advised and supported from the outset.

Considering selling your business? Our legal team can help you explore your options and prepare for a successful transaction.