Friday, 8 February 2013

Maximising Value in Debt Sale: Don't Get Hammered!

When Pierre Omidyar sold his broken laser pointer for the princely sum of $14.83 he felt obliged to contact the winning bidder of one of the first ever ebay auctions and ask if he realised that the pointer was in fact broken. The buyer explained “I’m a collector of broken laser pointers”.

What Omidyar had discovered was just how powerful the combination of providing a competitive bidding mechanism  for an asset and accessing the perfect purchaser actually is.

The debt sale market is currently a long way from Omidyar’s ideal of ‘creating the perfect market’ but there are a few key aspects of undertaking a debt sale that really do fall in to the no brainer category in terms of maximising value:

1.      Make it competitive. Private sales are an option of course, but can you really say hand on heart that they generate the best value for your organisation, your investors and your shareholders? Opening up to multiple bidders is the surest way to optimise price and there is a stack of evidence to support this.

2.      Involve the right purchasers. Knowing who is active in the market, how well funded they are, what specific types of debt they are looking for is vital information in making sure that the broken laser pointer has the perfect buyer available. Your debt might not be mainstream but we know that the right buyer is out there.

3.      Provide the platform. This isn’t just about a ‘mechanism, it’s also about providing buyers with confidence. Removing unknown factors by providing clean, consistent data removes risk for purchasers and negates defaulting to a worst case scenario view of the debt and directly translates to higher bids.

4.      Drive the bidding. What approach should you take to the bidding process; English auction, Dutch auction, sealed bids, multiple rounds? All are options and the answer is typically a combination. At TDX we are continually looking to enhance the bidding process in order to generate the most value for our clients.

This last point is often not given enough attention but is certainly something we have been focusing on at TDX. Our new bidding framework provides a powerful combination of different bidding tools, all designed to ensure that bids are optimised with less room for money to be left on the table.

Ultimately, taking the above steps should ensure a major uplift in price, and since not many companies are able to take all these steps in-house, this is an excellent example when external expertise proves its worth. So….. are you ready to sell your broken laser pointer to the right person at the right time?  

Oh, and the story that ebay was set up by Omidyar to sell his fiancĂ©’s Pez dispenser collection…..made up by a PR company to generate extra interest in the fledgling company. I guess you could say that getting in some expert advice worked!

By Mark Wright, Director of Debt Sale at TDX Group.

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