Buying a business or assets at auction

When exploring different avenues for buying a business, one of the less trodden paths is to use an auction house. However, for smaller businesses this is a route often worth venturing down.

There are numerous ways in which an individual or business can benefit from buying at auction. The first and most obvious benefit is there is great value to be had, if you know what you are looking for. This value stems from the fact when a business or its assets have been handed over to the fate of the auctioneer’s gavel, power is suddenly placed with the buyer.

Unlike traditional negotiations, once a business has come up at auction the seller can no longer object or haggle, beyond putting a reserve on the lot. The buyer meanwhile can decide on their maximum price, as they would usually do, but also stand a good chance of snapping up the company or its assets for a reduced figure.

Naturally, the reverse can also be true, as was highlighted at a business auction in Swindon in early November 2014. Two interested buyers set their sights on a retirement home and became embroiled in a fierce bidding war, which drove the final price up to £89,000, almost four times the original guide price.

Interestingly, the final price was still considerably under market value as judged by comparative transactions. And it is also illustrative of the lottery of the auction; should there not be stiff competition in the room, prices can fall well below suggested valuations.

The message here is that it is vital to understand what a business or asset is worth to the buyer before heading to auction. Of course this is not always easy to quantify, but in the heat of the auction – where bids can escalate quickly – it becomes even more important to have clear price points in mind.

Indeed, as with any merger or acquisition, due diligence must be taken to ensure the right opportunities are targeted and, more importantly, that the buyer does not pay above the odds.

As long as this level of preparation is completed prior to the auction date, there is excellent value to be found. Moreover, by tracking businesses that fall into distress through to their appearance at auction, a buyer can identify assets or bolt-on opportunities available that others might not be aware of.

This means that keeping abreast of new opportunities is key; business assets appearing at auction might have a short listing time and not be widely advertised – use this to their advantage and a buyer can get an inside track on competitors when it comes to acquiring beneficial assets.

One such example of how businesses can fuel growth through auction acquisitions is by purchasing properties from companies that have fallen into distress. If a firm wishes to expand its operations, open a new site or simply improve its business by upgrading the location or facilities of its premises then an auction could hold great value.

According to auction data firm Essential Information Group, 2,026 such properties were sold at auction in the UK in the first 10 months of 2014. And Matt Hilton from the Nottingham-based auction firm Heb explains: “Repossessed property can offer excellent value for purchasers. Often these properties have a limited marketing period and are priced extremely realistically in order to achieve a quick sale.”

For medium-sized business buyers there will be concerns that larger businesses rarely come up for sale at auction. And while this might be true, there are other, highly attractive, acquisition opportunities available. These opportunities can be anything from the aforementioned commercial properties such as shops, offices and warehouses through to assets such as stock and machinery.

There are a wide variety of items that come under the hammer, so it is worth taking a thorough look at local auction houses to see exactly what they have to offer.

For example, in October this year shop fitting and retail interior design business Anglo Interiors was placed into administration. The administrators announced several weeks later that the business was to be sliced up and some of its assets would be going up for sale at auction. The company – which had 120 permanent staff and dozens of contract workers, and operated from a 130,000 square foot manufacturing site in the town – counted some high-profile retail firms amongst its clients, such as Next, Gap, Hotel Chocolat and Arcadia.

The business suffered as the retail sector struggled in the aftermath of the economic crash, but it had an impressive client list and some valuable assets at the time of closure. Among the assets sent to auction was high-tech woodworking equipment, machine tools and metal fabrication equipment from the factory site. As such, the business’ assets represented an attractive prospect for medium-sized companies already with a foothold in the interior design, flooring or even set design industry but that wished to enhance or expand their offerings.

It goes without saying that the auction house is not going to be suitable for every business buyer. But for those looking for assets of distressed businesses there is certainly a bargain to be had.

If a buyer keeps an eye out for businesses going under the hammer – and naturally commits to the same level of care and diligence in identifying targets and completing valuations – then there is always a good chance they can secure purchases to grow or strengthen their business at a knockdown price.

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