How Multiple Bidders Can Drive Up Value and Save the Deal
The first company I founded began as a grad school side project and, over a decade later, grew into one of the largest players in a niche tech manufacturing space. When the board decided it was time to sell, we set our sights high: targeting acquisition by a large, well-established company in an adjacent industry looking to diversify.
We entered negotiations, secured a term sheet, and were close to finalizing a deal with a major corporation. But beneath the surface, there were risks that nearly upended the entire process.
The Danger of a Single Bidder
Our initial pool of interested buyers included three companies. But as time passed, two quietly dropped out, leaving us with just one serious contender. It’s a common trajectory in M&A: attrition narrows the field, and you’re left exposed.
Compounding the challenge, a major macroeconomic shock—the junk bond crisis of the early 1990s—hit our customer base hard. Our clients, many financed through high-yield bonds, stopped buying overnight. Revenue stalled. The clock started ticking.
Internal Conflict: A Hidden Threat
As we worked toward a deal, an unexpected internal threat emerged: a venture investor and board member launched a covert attempt to take control of the company. Using access to board dynamics and our subordinated debt, they moved to quietly acquire the company’s debt position.
Fortunately, a long-standing relationship with our lender paid off. I received a quiet warning about the attempted debt buyout—just in time to stop it.
But the message was clear: with only one buyer at the table, and a hostile internal party circling, we were extremely vulnerable.
Rethinking the Strategy: Creating Competitive Tension
At a critical juncture, I sought the advice of one of our more seasoned directors. He posed a simple question: “Have you approached your largest competitor?”
We hadn’t. Our concern was that sharing our intentions could be used against us—especially in a market slowdown. But the director challenged that logic and proposed a bold counter-strategy: use a trusted third party to discreetly leak that we were “in play.”
This wasn’t a backchannel tactic for the faint of heart—it came at a five-figure cost, and it felt risky. But we went through with it.
The Outcome: A Strategic Turnaround
The result? Our major competitor, upon hearing that a rival was about to acquire the second-largest player in their segment, came in aggressively—beating the original offer and closing the deal.
What no one knew at the time was that our initial bidder had quietly gone dark just weeks later. Had we not created a competitive environment, the deal—and all shareholder value—would likely have collapsed.
The Real Lessons from the Exit
1. Always Have Multiple Bidders
Yes, this is the obvious takeaway: competition matters. Without it, pricing power disappears, timelines slip, and deals can unravel.
2. The 50% Rule Is Real
The most surprising and valuable lesson? The buyer who came in late paid roughly 50% more than the original offer. At the time, I assumed it was an outlier. But after watching similar patterns in subsequent deals, I learned it’s not rare.
A second or third bidder doesn’t just create leverage—it can meaningfully change the entire valuation landscape.
Final Thoughts
In exits, as in fundraising, timing and leverage are everything. Multiple bidders not only create momentum—they protect against downside risk.
If you’re planning an exit, don’t settle for a single path. Build optionality early, even if it feels uncomfortable. Because when the stakes are high, one phone call—or one missing bidder—can make all the difference between success and collapse.