Historically, portfolio owners have sought out brokers to tender portfolios to a few favoured clients. The portfolio owner relied on personal connections of a broker in the old-fashioned way. While this ‘trusted advisor’ model is emotionally appealing, numerous academics (eg Milgrom, Bulow, Klemperer) have highlighted the shortcomings of the ‘trusted advisor model’—in sales price execution.
HLIX extracts the extra 10% in sales price because bidders value the market information they gain by bidding on the platform. With HLIX, buyers bid the maximum amount they are prepared to pay because they see the entire bidding landscape of their competitors. This price transparency is not possible in the ‘trusted advisor model’ and buyers always disguise their maximum price from the personally-connected broker.
One buyer or many?
The HLIX process was designed from rigorous research.
Prof. Subramanian at Harvard Business School has studied the methods of sale and had interesting words to say in a recent paper about whether the seller should favour a personal approach and target one buyer (perhaps doing this successively, ie one buyer singly after another) or to throw the sale open to many buyers in an auction. (HLIX offers an auction based approach yet also allows the seller and the buyer to choose packages which suits them.) ….
“…Not all transactions require collaboration between the buyer and the seller, however. In many instances, an auction is still a better approach than a negotiation. The trick is in knowing which process to use when. To make that choice, you need to clearly understand your potential buyers, the characteristics of the asset in question, your own priorities, and the relative importance of speed and transparency to obtaining the best price.
The Nature of the Buyers
Sellers deciding whether to hold an auction should examine the pool of buyers from four perspectives: their number, their identity, their willingness to take part in an auction, and the valuations theyʼll place on the asset up for sale.
Number of buyers.
The more possible buyers you have, the more likely you are to get a high price in an auction. But all else being equal, the value of each incremental bidder goes down as the total number of bidders goes up, as you can see in the exhibit “Whatʼs the Optimal Number of Bidders?” At about 10 bidders, youʼll get 85% of the revenue that you could expect to get from an auction with 50 bidders. After about 15 bidders, the value that each potential buyer adds drops to almost nothing. In the absence of any particular advantage, each additional bidder has a smaller and smaller chance… more”
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