Investec has been tracking failed auctions in the EU since 2008. There has been a dramatic increase in the number of failed auctions from June 2018, hitting a high of 282 for the five years leading up to December 2019. 

The UK accounted for 54% of all failed auctions since 2015. Partly this figure is a result of the UK being the largest EU market for private equity deals, so the dynamics are most striking in this region. However, the political uncertainty in the UK will certainly have impacted auction processes, particularly in sectors like consumer where it is difficult to price future cashflows.

We are in the 9th year of a seller’s market, with valuations approaching their peaks. As a result, advisors feel increased pressure to promise high valuations to win mandates, and in turn these high valuations can tempt vendors into selling more opportunistically, before a portfolio company is fully ready for sale.

Following analysis of the data, we have highlighted 6 key reasons that auctions fail: 

1. Inadequate investment case positioning

2. Wrong process architecture

3. Incorrect screening of buyer universe

4. Insufficient access to buyer universe decision-makers 

5. Misaligned incentives between vendor and management teams

6. Business plan underperformance

The research highlighted a strong link between deal size and propensity for failure: deals with EVs below £250m accounted for 59% of all failed auctions, while deals with EVs over £1bn accounted for 14%.

“Our source data analysis suggests that the first three reasons above account for more than 70% of failed auctions. This highlights the importance of choosing the right advisors when considering a sale process.”

Christian Hess, Private Equity Client Group Head, Investec