Secondary transactions in the venture capital (VC)-backed, private company space have increased over the past several years. The tender offer continues to be the most common transaction structure; however, private companies and their shareholders are interested in alternative approaches - private, secondary auctions. In Nasdaq Private Market's latest whitepaper, "An Introduction to Secondary Auctions for Private Companies," we discuss how various auction structures can provide more market-driven pricing and potentially allow employees and shareholders to be more involved in the transaction itself.
- What is an auction?
In its simplest form, an auction is a process in which potential buyers place bids on assets or services, with the intention of becoming the highest bidder and purchasing the asset or service for that amount 1 . Nasdaq Private Market's technology has the ability to run variations of English, Dutch, first price and second price auctions as well as customize programs to meet a company's specific needs.
- Advantages and disadvantages of auction-based transactions
Secondary auctions come with potential benefits as well as possible risks. Auctions can be beneficial for the sponsor company when considering competitive pricing, speed of transaction process, and flexibility in customizing the process. However, factors such as higher prices, minimal seller input in certain program structures like buy-side auctions, and the risk of a price mismatch between buyers and sellers should be evaluated before running an auction.
- Client Case Study
Nasdaq Private Market operated this new buy-side auction transaction model with a B2B client, which gave investors the opportunity to purchase shares in the company and provided eligible sellers with access to liquidity at competitive prices.
- Best practices when structuring an auction
There are numerous factors that determine the success of an auction, including the demand from both the sell-side and buy-side and the ability to create a more competitive bidding process. Rigorous due diligence, company meetings or calls with potential investors, and the use of standardized agreements and documentation are all important contributors to a successful auction.
With a proven software platform and an experienced team which has facilitated more than 230 transactions since 2013, Nasdaq Private Market helps companies provide liquidity for their shareholders that potentially brings the private markets more value and customization. Learn more by accessing the whitepaper here .
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The information contained herein is provided for informational and educational purposes only. The NASDAQ Private Market, LLC does not provide legal, tax, investment or financial advice.
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