A Preemptive Sale is a sale negotiated with a buyer in a non-competitive environment. The benefits and risks associated with a Preemptive Sale are straightforward:
- The benefits include speed and confidentiality
- The primary risk is the possibility of selling for a price below what the market would bear
In the public market, the risk of selling for a price below market is small. When a company’s value is known every trading day, it is easy to compare a preemptive offer to the market price. Typically, preemptive offers for public companies in the aerospace and defense industry are in the range of 20-25% over the 30-day average trading price.
In the private market, it is very difficult, if not impossible, for a seller to determine the price the market will bear, without first receiving multiple offers from qualified buyers. While an expert valuation might be helpful, no estimate of value can be as reliable as competing offers,
For private company owners who are contemplating entering into Preemptive Sales, we recommend starting with the Competitive Sale Process. Early in the Competitive Sale Process, qualified buyers are given limited information and submit non-binding preliminary indications of interest (IOIs). If a client elects to enter into a Preemptive Sale, after IOIs have been received, they are able to do so with the confidence of knowing the market price.
We wish you a happy holiday season and hope you have enjoyed reading Deal Notes® in 2023. Our next Deal Note will be published Tuesday, January 2, 2024.