When deciding the method by which to sell a business, auctioning
is an infrequent option among Canadian business
owners. Yet, this seller-oriented process is designed to secure the
best price and terms possible business owners.
By creating competitive tension, the auction process
compels bidders to put forward the highest price they would be
willing to pay in order to succeed.
Some argue that bidders in an auction tend to overpay for a
target: while this may be due, in part, to a bidder merely wanting
to "win" the bid, there's also an issue of
information disclosure at play. Unlike private negotiations where
information and disclosures about a target company may flow
readily, there is a risk of information asymmetry during an
auction, whereby a bidder has less information upon which to base a
bid, possibly resulting in overvaluing a target. The auction
process, it is then argued, may result in gains favouring a seller
which are otherwise unlikely to be achieved through other
Notwithstanding that, at first glance, it may seem as though the
auction process is one-sided and merely facilitates the transfer of
wealth from the pocket of the bidder to that of the seller, the
auction process is more than a zero-sum game. In this article, we
explore the various advantages to the bidders in an auction
Dissemination of information.
As a necessary part of the auction process, more market exposure is
required for the seller. This may result in more information about
the target company, including confidential information, being
disseminated into the public domain. Consequently, the unfavourable
impact of information asymmetry on the bidder is lessened and the
risk of misjudging the value of the target company is mitigated.
Moreover, if the bidder operates in the same market as the seller,
the additional knowledge of other market players confers
significant competitive advantages to the bidder.
opportunity. The dynamic of an auction process allows the
seller to survey the market thoroughly to identify all
the potential bidders. Once the auction starts, the bidders will be
able to recognize the existence of other bidders for the target
company. The benefit from this information is three-fold. It not
only serves as a confirmation of the value of the company to
bidders but also validates this opportunity for bidders. At the
same time, the auction provides an opportunity for the bidder to
uncover all the participants in the area where it conducts
business, which enhances its knowledge of the market
execution. In comparison with private
negotiations, a well-organized auction typically results in
transactions closing earlier. Without continuous back-and-forth
with the seller, the management team of the bidder can spend less
time and effort on the takeover bid. The bidder benefits from the
reduced distraction to its management team, who can concentrate on
more important managing issues and creating more value.
The author would like to thank Jiarui Zhao, summer student,
for her assistance in preparing this legal update.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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