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Competing acquisition bids can strengthen a seller’s bargaining position and raise the price, but the highest headline offer is not automatically the most attractive deal. Payment form, contractual protections, bidder credibility and the risk of a rival bid or cancellation all matter. An announced agreement is not the same as a completed transaction, and the available studies do not establish one closing probability that applies to every deal.
How competition can affect price
More bidders can give a seller leverage to seek improved offers. In auction theory, a competitive process may also encourage bidders to enter, which can increase the seller’s expected revenue. But competition is not a guarantee of a higher price: results depend on the bidders, the sale process and how competition is measured.
Richard Schubert’s 2020 working paper, revised in 2022, analyzes 780 public U.S. transactions using a representative sample augmented with hand-collected SEC filing data. The abstract reports that a one-standard-deviation increase in the paper’s Proposals-to-CA-Ratio competition measure was associated with a 5.99% higher deal initiation premium. That is a sample-specific association, not a promise that adding a bidder will raise a particular offer by that amount.
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Scan for outdated or missing drivers - takes under a minuteDriver Scan →Clear out junk files and repair common Windows errorsFree Scan →The same abstract reports 0.87% lower winning-bidder announcement returns for auctions under that one-standard-deviation increase in the measure. This is a finding about bidder returns, not the target seller’s premium or the probability that the deal closes. The study’s results should not be read as universal causal rules for transactions outside its sample.
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Why one announced bidder may not mean there was no competition
Competition can take place privately, before a company announces a deal. A process may range from a formal sealed-bid auction to one-on-one negotiations, and the number of publicly announced bidders may not capture the earlier contest. Research using SEC merger documents argues that public rival-bid counts can understate that process.
That distinction matters when judging a deal: a company that announces one buyer may already have tested interest from other potential buyers or negotiated under competitive pressure. Conversely, a public rival bid after announcement is a new event, not proof that the original sale process was a full auction.
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Why the highest offer may not be the best offer
Price is only one part of a proposal. Sellers and boards may also weigh how the buyer will pay, what conditions apply, how the bidder can respond to a rival, and how much uncertainty remains before closing.
Payment form
Payment can be cash, stock or a mix that includes contingent amounts. A takeover research review reports that a bidder concerned about adverse selection on the target side may choose stock payment. A 2025 Journal of Finance article models a seller choosing between an auction with more bidders and negotiations with fewer bidders; its abstract says negotiations can allow the seller to choose a preferred payment structure. Which process is more attractive depends in part on bidder valuations and synergies, so neither payment form nor sale method is universally superior.
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An indexed summary of an international bidder-contests study associates a higher cash share with contest success. That summary also describes toeholds and termination fees as potentially reducing competition and improving success conditional on a contest. These are context-sensitive findings, not a rule for an individual transaction; the summary notes variation over time and by legal origin.
Execution provisions
Contract terms can shape a contest as well as its price. The takeover literature discusses termination fees, break-up fees and matching rights as provisions that may influence bidder entry or the parties’ ability to respond to another proposal. A toehold—a bidder’s existing stake in the target—can also affect incentives. Their effects depend on the deal context, bidder asymmetry and applicable law; none guarantees that an agreement will close.
Can a rival bid or cancellation happen after announcement?
Yes. In the 780-transaction U.S. sample, Schubert’s working-paper abstract reports that a one-standard-deviation increase in the Proposals-to-CA-Ratio measure corresponded to a 130% increase in the relative probability of receiving a rival bid before closing and a 44.5% increase in the relative probability that the originally announced deal would be cancelled. Both figures are relative to the study’s unconditional probabilities—not percentage-point increases, absolute likelihoods or forecasts for a particular deal.
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The figures show why announcement should not be treated as completion. A competing offer can emerge before closing, while the original agreement may be cancelled; the study does not supply a single closing rate that readers can apply to all acquisition deals.
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When might a seller choose an auction or negotiations?
Neither process wins in every setting. A 2019 Journal of Financial Economics study of takeover markets uses structural estimation to examine bidder entry and competition. Its abstract reports similar aggregate prices in the studied setting, with auctions preferred under higher uncertainty and negotiations under lower uncertainty. Those findings are not a universal pricing rule.
A seller evaluating a process can compare the practical trade-offs below. They are decision factors, not guarantees of a particular outcome.
| Consideration | Auction | Negotiation |
|---|---|---|
| Bidder entry and uncertainty | May encourage entry; the 2019 study reports auctions are preferred under higher uncertainty in its studied setting. | In the 2019 study, negotiations are preferred under lower uncertainty in its studied setting. |
| Price | Competitive pressure may improve seller pricing, but Schubert’s estimate applies to his defined U.S. public-deal sample and measure. | The 2019 study reports similar aggregate prices for the auction and negotiation processes in its studied setting. |
| Payment structure | Multiple-bidder auctions are connected with cash payments more often in the cited research; this is not a universal rule. | The 2025 Journal of Finance article says negotiations can let sellers choose a preferred payment structure. |
| Process and information | Indicative nonbinding bids can help screen participants before costly diligence and final binding offers. | Fewer bidders may make a negotiated process more suitable when the seller values a tailored payment arrangement; the 2025 article’s model makes attractiveness dependent on bidder valuations and synergies. |
| Execution and contest risk | A rival bid may emerge before closing; provisions such as matching rights or termination fees can affect contest dynamics. | Private competition may still shape bargaining even if only one buyer is publicly announced. |
What the evidence can—and cannot—tell a buyer or seller
The studies describe tendencies and mechanisms across particular samples or models, not a closing calculator. A company assessing an offer should distinguish the bid’s price from its payment terms and execution prospects, and should not infer that an announced deal is certain or that more competition always improves the final result.
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Quick Recap
- Ask whether the company’s process included private approaches or proposals, not only publicly announced rival bids.
- Compare the offer’s payment structure and conditions alongside its headline price.
- Consider how agreement provisions could affect the ability to respond if another bidder appears.
- Treat published estimates as specific to their sample, measure and method; they do not establish a universal probability of closing.
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