Bilateral Process

A bilateral process is a sale in which negotiations take place with only one potential buyer. Instead of letting many bidders compete against each other, the seller focuses on one partner. This is often more discreet and faster, but creates less price competition than an auction process. It is typical where buyer and seller already know each other, for example from a supply relationship or a minority stake, where an investor approaches the company unsolicited, or where confidentiality overrides everything because customers, competitors or employees are not to learn of the sale.

The sequence is the same as in a competitive process, only without phases: confidentiality agreement, information exchange, letter of intent, due diligence, negotiation and completion. The buyer regularly requires an exclusivity agreement for a limited period before taking on the cost of diligence, and with it the seller gives up its most effective lever. Without competition, bargaining power shifts noticeably: renegotiation after due diligence becomes more likely, warranty packages are broader, and holdbacks or earn-outs are agreed more often.

The seller can partly offset this by making it credible that a broad process remains available, by underpinning a firm price expectation with its own valuation, or by providing vendor due diligence to narrow the buyer's information advantage. For financial sponsors such situations are especially attractive as proprietary deal flow, because entry multiples without competition are typically lower. A bilateral process should be distinguished from a limited auction, where only a few parties are approached but several are approached at once, so competitive pressure is preserved.

In practice the process rarely runs entirely without an alternative, because experienced sellers prepare a buyer list in parallel and can activate it immediately if talks break down. The mere existence of that preparation changes the negotiation. A clear sequence with fixed dates also helps, since a process without structure tends to drag on, which weakens the seller further. For the buyer the advantage, besides price, is the calm in which it can conduct diligence and negotiate the contract.