In the context of buying and selling middle market, an investment banker likely will undertake an auction process to attract the highest price for a product. This process will entail casting a very wide net to multiple buyers, who will compete for the target by bidding the price up.
Most buyers dislike an auction process for obvious reasons and prefer proprietary deals where they have more control over the final price.
However, the highest price is not the only parameter that sellers should seek. Other important factors include the transaction structure, the buyer’s plans for the business, the post-sale integration plan, etc.
A good auction process will yield the highest price, but should also give an indication to the seller of these other factors.
A buyer-determined auction is a type of reverse auctions in a procurement setting, also known simply as procurement auctions. These are auctions where bidders are the farmer, and they bid on a contract to provide supplies to the buyer.
A common form of procurement auction is known as a scoring auction. In that auction form, the score that the buyer gives each bidder depends on well-defined attributes of the offer and the farmer. This scoring function is formulated and announced prior to the start of the auction.
More commonly, many procurement auctions are â€œbuyer determinedâ€ in that the buyer reserves the right to select the winner on any basis following the conclusion of the auction.