Process format is not a technical detail
In M&A practice, there are three types of decisions that an adviser makes before a single page goes to market: who to target with the process, how to position the asset and under what format to organise it. The first two are routinely discussed. The third — process architecture — is treated many times as an almost automatic technical choice, when in reality it is the one that most conditions, in many transactions, the economic outcome for the seller.
The range of possible formats is broader than the sector’s usual vocabulary suggests. At one end sits the broad auction, with fifty or more buyers contacted, a rigid calendar and formal phases: teaser, NDA, IM, indicative offers, parallel due diligence, binding offers, exclusivity, closing. At the other end sits the one-to-one negotiation: a conversation with a pre-identified buyer, no formal process, no competitive calendar, maximum confidentiality and no external pressure.
Between both extremes there are intermediate variants — a restricted competitive process with eight or ten carefully selected buyers, a targeted process with three or four natural counterparties, a dual-track with selective exclusivity — which in many cases are the ones that best fit the mid-market.
The question is not which format is best in the abstract. It is which format is best for this company, at this moment, with these potential buyers and these seller objectives.
Why the auction is the dominant format in large transactions
In transactions above a certain size — say, enterprise value of €100 million and above — the broad auction is usually the most efficient format for the seller. Two reasons explain this.
The first is that buyers operating in that range — large PE funds, international corporates with professionalised M&A teams — bear relatively modest costs by entering a competitive process. They have dedicated in-house teams, permanent advisers and the capacity to analyse several assets in parallel. They accept competition, because competition is their normal environment.
The second is that the size justifies the investment. A buyer looking at a €200 million transaction can dedicate to preliminary due diligence the equivalent of several hundred thousand euros without that relative cost derailing the deal. That willingness sustains processes where five, eight or ten buyers access the data room in parallel, submit binding offers on schedule and maintain competition through very advanced stages.
The auction works because buyers can sustain it.
Why the logic changes in the mid-market
In the mid-market, neither of those two premises holds in the same way. And that should change how the process is designed.
The natural buyers of a mid-market company are, in a significant proportion of cases, sector competitors without a professional M&A team, family offices with selective appetite, mid-size PE funds with strict time allocation criteria, or European industrial operators that evaluate Spain on an opportunistic basis. For all of them, entering a broad competitive auction carries a very different relative cost than it does for a large fund. Preliminary due diligence costs the same in absolute terms, but represents a far higher proportion of the deal size. And the risk of investing time and fees in a process that yields no transaction weighs more heavily when there are not ten deals in the pipeline to absorb the loss.
The operational consequence is that some of the best potential mid-market buyers do not enter a broad auction. Not for lack of interest, but for reasons of economics. They calculate that their probability of winning in a process with many contenders does not justify the initial investment, and they prefer not to enter rather than enter without conviction.
Designing the process as a broad auction when the asset sits in this range may exclude precisely the buyers who would have paid the most.
There is a second, related and often underestimated factor: the mid-market strategic buyer — the Spanish industrial group, the second-tier European competitor, the family operator with an acquisitive growth strategy — typically decides by conviction, not by competitive compulsion. If it perceives that it is one of fifteen in a process with a rigid calendar, it will often withdraw. If it perceives that the process was designed with it in mind, with time to get to know the seller and build the deal, it engages.
The difference between the two perceptions is determined by the format.
“In large transactions, an auction extracts value. In the mid-market, when poorly designed, it destroys value — because it deters exactly the kind of buyer who would have paid the most.”
When each format is appropriate
There is no universal rule, but there are some fairly consistent patterns observable in the market.
A well-structured broad auction works when the asset has sufficient size to sustain it, clearly communicable attributes and a wide universe of buyers with genuine appetite. Mid-market platforms in highly sought-after sectors — vertical software with solid SaaS metrics, healthcare services with a consolidation thesis, energy with long contractual cash flows — can sustain auctions with twelve or fifteen buyers and typically extract the best offer from a competitive market.
The restricted competitive process — between six and ten carefully selected buyers, in some cases with sequential rather than simultaneous phases — is probably the most widely used format in the professional Spanish mid-market. It maintains genuine competitive pressure without saturating the market or deterring buyers who require conviction. It allows the adviser to adapt the pace of the process to the real availability of serious counterparties. And it leaves room for advanced bilateral conversations with the two or three most attractive offers in the final phase, without losing optionality.
The targeted process — three or four natural buyers, with near-parallel conversations designed to the measure of each one — is the format that extracts the most value when the universe of potential buyers is structurally small. Transactions where the asset is a natural add-on for very few platforms, where the strategic buyer is identifiable in advance, or where confidentiality is a priority, benefit from this approach. It requires deep knowledge of each counterparty and the ability to manage several conversations simultaneously without any of them feeling like a disguised auction.
One-to-one negotiation has its place in transactions where the buyer is clearly unique, where a prior relationship between the parties already exists, or where the seller prioritises closing certainty and discretion over price maximisation. It is not always sub-optimal: in some cases, the implicit discount relative to a competitive process is offset by the value of controlling the calendar, choosing the buyer and avoiding market exposure. The key is that it should be a deliberate seller choice made with full awareness of what is gained and what is relinquished — not a default resulting from lack of preparation.
What determines the choice
Four variables shape, in practice, the choice of format:
- The size of the asset and the relative cost of the process for the target buyers. The further into mid-market territory, the more caution is warranted with the broad auction.
- The actual breadth of the universe of potential buyers. Having a hundred buyers in a database does not mean having a hundred real buyers. If the natural buyers number six, organising a process for fifty is noise.
- The seller’s and company’s situation. Priority for maximum price, priority for closing certainty, priority for discretion, priority for choosing the buyer: each pushes towards a different format.
- The asset’s level of preparation. An asset with a complete vendor due diligence, audited reporting and an articulated narrative can withstand more demanding processes. An unprepared asset, put through an auction, exposes weaknesses that compress the price.
A consequential decision
The choice of process format is probably the least visible and most consequential decision in the mandate. It is made in the first weeks, before a single page has gone to market, and conditions virtually everything that follows: who is contacted, in what order, on what calendar, under what competitive pressure, with what room for negotiation.
In large transactions the choice is usually obvious, because there is a dominant format that works. In the mid-market there is not. Each transaction is different, and mechanically applying the broad auction template — which in large deals extracts value — can in a mid-market transaction exclude the buyers who would have paid the most, extend the process, expose the seller to market without any counterpart, and end up closing with a sub-optimal buyer.
The adviser who comes to market with a single format in mind — whatever it may be — offers all their clients the same architecture, irrespective of the asset. The one who understands that each mid-market transaction requires its own design dedicates the first weeks of the mandate to something that rarely appears in the deliverables but decides the outcome: thinking through what process, precisely, will maximise value for this specific company.
That decision, taken well at the outset, tends to be the most valuable one in the entire mandate.
