A qualitative exploration of the bidding processes used in business rescue

Abstract

Orientation: In business rescue, when pursuing the sale of the business to a third party, the business rescue practitioner (BRP) may use different bidding processes to interact with and select buyers.

Research purpose: This study aimed to provide a framework to classify and describe the various bidding processes, including identifying the factors that would preserve value to the benefit of creditors and shareholders.

Motivation for the study: Chapter 6 of the Companies Act is silent on the requirements regarding bidding processes. Therefore, the industry and legislator may benefit from guidance from industry experts.

Research approach/design and method: Qualitative exploratory, using semi-structured interviews with 11 South African senior business rescue practitioners.

Main findings: Three types of bidding processes were identified. In a sophisticated bidding process, information is communicated to buyers using a virtual data room. The second bidding process is less sophisticated; printed document packs are provided to bidders, and bids are submitted in tender boxes. Thirdly, the private bid-out process, where preferred bidders compete against each other in a closed envelope boardroom auction. The findings also revealed that deal certainty is more important in business rescue than ordinary mergers and acquisitions. Moreover, an equitable value, rather than a general market value, is often applied because of the bidding process. Lastly, the study identified a need for the pre-involvement of the BRP before a company files for business rescue, an aspect not currently allowed by the Companies Act.

Practical/managerial implications: BRPs can benefit from the explication of the types and detailed steps of bidding processes. Moreover, the findings fill the void of limited guidance in the Companies Act.

Contribution/value-add: The classification and description of the various bidding processes and key considerations in the context of a business rescue will assist BRPs in South Africa in preserving value under business rescue and guide the legislator in amending the Companies Act.