Negotiated Sale
| Negotiated Sale |
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| See also |
Negotiated Sale is a type of sale which was discussed, negotiated between seller and buyer. The main effect is to establish best sales conditions [1]. There are two ways to approach attractive agreement. According to Weich D. this situation takes place where “there is only one bidder or a bidder has a marked advantages over other bidders in the government's eyes” [2]. On negotiated sale there are most noteworthly degree of secrecy [3].
Advantages of Negotiated Sales
There are many positive asspects of Negotiated Sales as below [4] [5]:
- sale date and terms of agreement can be changed in accordance to changing marked conditions,
- the issuer has higher level of control over form of underwriting sindicate,
- for some years, the medium net endorsing spread has been a little lower for arranged deals,
- the chosen guarantor might perform some actions out of competitive issue advisor in order to eliminate extra costs,
- the underwriter can perform better and more presale promoting actions, which can increase the chance of finding investors able and willing to pay higher price,
- the negotiated sale provides maximun confidentiality, it can be maintained because there are only two sites- seller and one buyer.
Disadvantages of Negotiated Sales
On the other hand, we can point some drawbacks[6] [7]:
- single buyer has no predominance, seller keeps an ability to turn around and leave, then find different purchaser,
- the lack of competition beetween buyers in establishing terms of the offering, which may anticipate the issuer from accomplishing the most reduced costs,
- government members can be open to allegations of partiality toward chosen financier.
Importance of Negotiated Sale
Negotiated sale is a really great option for selling municipal bonds. In this situation, we have only one buyer who is hired by an issuer and seller-an investor who want to buy them. On one's hand, it requires a lot of time to make a buyer satisfied because of diligence needs. Due to picking underwriters by government officials some political influences can be susceptible [8]. It characteristic leaves investors without knowledge about fair market value due to having no comparison. Negotiated sale provides anty few market data, so has no idea about the best possible price too. On the flip-side is often initiated by investment bankers who have stable relationships with a potential business partner. Often bankers play a key role in the whole process, arranging appointments between potential buyer and seller's principals what makes it reliable. That way significantly speeds up the sales process [9].
Footnotes
References
- Feldstein S. G. (red.), (2008), The Handbook of Municipal Bonds, Wiley & Sons, New Jersey, Hoboken, p. 59
- Filippell M.A., (2011), Mergers and Acquisitions Playbook: Lessons from the Middle-Market Trenches, John Wiley & Sons, New Jersey, Hoboken, chapter 8
- Marks K.H.(red.), (2012), Middle Market M & A: Handbook for Investment Banking and Business Consulting, Wiley, New Jersey, Hoboken, p.102
- Rosenbaum J.(red.), (2013), Investment Banking: Valuation, Leveraged Buyouts, and Mergers and Acquisitions, John Wiley & Sons, New Jersey, Hoboken, chapter 6
- Snow B., (2018), Mergers and Acquisitions For Dummies, For Dummies, New Jersey, Hoboken, p.50
- Temel J. W.(red.), (2012), The Fundamentals of Municipal Bonds, John Wiley & Sons, New Jersey, Hoboken, p.101
- Weich D.(red.), (1998), The Case-by-case Approach to Privatization, World Bank, Washington, p.23
Author: Maria Kucz
