Many owners hope a buyer will knock on their door with a high offer as soon as they’re ready to sell. This can happen, but it’s rare. Even when an unsolicited offer arrives, boards should not approve a one-bidder sale. The price will almost inevitably be too low. Even if it’s a fair offer, the perception will be that it is too low.

An unsolicited offer almost always constitutes a lost opportunity because such an offer means there are no competing bids. Successful sales demand a competitive bidding process. This process offers numerous benefits:

Safety

Buyers sometimes stop calling for no clear reason. Something more interesting may have come up or something in the organization might have changed. It’s nearly impossible to re-engage when this occurs.

Sales can blow up at the last minute. This is part of the process, partially because both sides often delay the most contentious issues until the last minute. Having multiple bidders going into final negotiations ensures a sale can follow through to completion.

Predictability

Shareholders who have decided to sell would like to do so as quickly as possible, with much predictability. Predictability protects the business. Employees who are anxious and uncertain may jump ship. Senior management should be able to plan their lives.

When a company engages with just one interested party, no one has predictability. That’s doubly true when negotiations fall apart. The process begins again and everyone has lost many months. Worse still, when a company doesn’t timely sell, everyone—customers, shareholders, the entire industry—may become convinced something is wrong. This lowers value and means fewer buyers will be interested.

So when a board decides to sell, the process must be effectively managed to ensure predictability and that means seeking multiple bidders.

A Strong Negotiating Position

Successful salespeople highlight the positives. When a company is the product, however, buyers are usually pretty sophisticated. They ask lots of questions and salesmanship may not convince them.

Buyers are more convinced when a company has more than one bidder. You can’t convince a smart buyer that you have more than one bidder, unless you actually do. Every sales team needs to negotiate from a position of strength. Multiple bidders retain that strength for the duration of the process.

Maximizing Valuation

The sales market is both inefficient and illiquid. We’re all susceptible to professional sales experts as each of us seeks the best deal possible. We all want to close because it feels bad to put a lot of effort into a process that fails.

Multiple bidders maximizes business value because value is in the eye of the bidder. The supply of companies for sale is very limited. Sometimes there’s only one similar business available. When there are multiple buyers, the price goes up. With one bidder, it’s impossible to maximize value—even with clever sales tactics.

Sound Governance

Shareholders elect boards to act in their interests. Aside from hiring the CEO, the board must navigate ownership changes. It is a board’s last duty to its shareholders.

It’s easier to do the right thing than it is to be viewed as doing the right thing. Company sales are challenging and complex undertakings. No two sales are the same. Managing the desires of management and the interests of shareholders is a delicate process.

The best way for a board to know it is doing its job is to have multiple bidders. Three bidders are easier to compare than two, making it easier to select the best offer. With just one bidder, there is no way to know whether the board got the best deal—even when it did.