Richmond, VA August 18, 2004 -- A bankruptcy/creditor's rights attorney recently admitted to a colleague that he was unsure about when – or even whether – it was appropriate to use the sealed-bid auction method.

Tranzon auction experts weigh in on the issue. Bottom line? Both live and sealed-bid auctions have their merits, and work well for either distressed or non-distressed properties. However, choosing which to employ depends on market conditions, seller's goals, the asset's perceived and real value, liabilities, time table and what's actually for sale, according to Jeff Levin, president of Tranzon, LLC, one of the largest accelerated marketing, auction sales forces in the nation.

A basic rule of thumb is to hold a live auction if the only variable is price, a great physical turn-out is expected and there is high interest. All other parameters are set by the seller. In certain deals, however, price is just one of many possible negotiating points and that is when the sealed-bid route may well be the better way to go.

"Generally, sealed-bid auctions are held when the sale is about more than just price. For example, you're offering bids through pools in a multi-par sale or selling a variety of different assets and maybe only have one or two buyers," says Stephen Karbelk, AARE, one of Tranzon's top experts in bankruptcy and foreclosure.

"You'd also go this route if you believe there will be a huge gap between what the end user is willing to pay versus what the investor will pay," according to Karbelk, an executive vice president with the Tranzon Fox group who operates out of Northern VA offices.

In order for a sealed-bid auction to be successful, "It's got to be more than a ‘fishing expedition.' There should be a sense of urgency to it, just the way you create urgency and excitement during a live auction," says Steven Fox, AARE, CAI, one of Tranzon's founding members who also is on the executive committee and works from offices in Tidewater, VA.

An example is the sealed-bid sale Tranzon did for Baltimore-based Bakery Resources Group, which marketed sweets under the popular Ms. Desserts name. The company ended up in bankruptcy after a major client went belly-up.

"In the Ms. Desserts sale, there was a real estate lease the buyer could either assume or reject, affecting the purchase price, and other complex variables," says Karbelk, who worked this deal.

Nationally known creditor's rights/bankruptcy attorney David Musgrave, who represented the lender, says, "This was a very difficult deal. No buyer really wants to assume another company's debt, and Ms. Desserts came with a fair amount of baggage. The key was to package the company in a way that put value on both tangibles and intangibles."

Tranzon structured a sealed-bid sale with built-in flexibility. They also skillfully promoted one of the company's biggest assets: its loyal employees who stayed on the job, believed in the company and took pride in the products they made. Both TV, radio and print press picked up on what Tranzon pointed out: that you can put a value on a good reputation and assets that "exit the building each evening after a job well done." This helped attract the buyer.

Musgrave, a senior partner at Baltimore-based Ober Kaler Grimes & Shriver who serves on the board of the Turnaround Management Association, says, "We ended up selling the company for far more than we'd imagined – in spite of its baggage. This is where you see the true value in hiring a professional auction firm skilled in marketing, with the know-how and the contacts to really work all angles in a very short time period"

Walter J. Driggers, III, CAI, AARE, a senior Tranzon partner based in Florida, says "If you have a turn-key operation, it's generally better to hold a sealed-bid auction."

Driggers' team used the sealed-bid process to successfully sell GMP, a Tampa-based asphalt company, this spring.

"This was a fairly unusual asset. We thought there'd be a narrow pool of potential buyers. There wasn't enough equipment to do an equipment auction and the costs were too high to remove the machinery. So, we decided to sell it as a turn-key operation, using the sealed-bid process.

"The key was to reach what limited buyers there were and motivate them to participate in this auction. That's where Tranzon's ability to tap into its coast-to-coast resources and national list of contacts comes into play and really makes the difference in getting the most dollars, or, as Tranzon's slogan puts it, ‘Transforming Assets into Energy'," Driggers says.

Tranzon's John Bippus, AARE, CAI, president of Tranzon's Michigan-based group, joins other Tranzon team members who have successfully sold many gas stations and convenience stores at live auction.

"But we elected to go the sealed-bid route for a station in Marshall, MI, which has a population of 10,000. While the location was good, it wasn't enough to attract many bidders. We set the target sale price between $350,000 - $400,000 and got three participants, whose bids ranged from $300,000 - $550,000. That's when you know you've turned over every stone and hit another home run."

According to Thomas W. Saturley, there are opportunities to creatively use the sealed-bid and live auction methods in tandem. When he does stage a sealed-bid auction, it's often a hybrid between a live auction and a sealed-bid auction. Or as he terms it, a ‘Sealed-Bidders' Auction.

"You start with the sealed-bid concept, but build in parameters for a live auction. Let everyone know up front that the three highest bidders automatically will enter into an oral auction. Anyone whose bid is within 20% of the highest bidder also has the right to participate".

"Now you've accomplished two things: you've built in the competition and you've shared with the seller what the true market value is. And an exciting thing happens. The guy who bid $900,000 isn't about to lose out for just $100,000. He's geared up to bid more. That's when you exceed your goal," says Saturley, an auction expert and attorney who heads Tranzon's New England operations from offices in Portland, ME

Tranzon, with national headquarters in Richmond, VA, has 12 member companies and 23 offices coast-to-coast that together conducted auctions, sealed bid sales and liquidations in more than half the U.S. states and the District of Columbia last year. Tranzon professionals specialize in providing real estate and business asset and liquidation auction and accelerated marketing services to corporations, financial institutions, trustees, individuals and estates throughout the U.S. Learn more about Tranzon at www.tranzon.com.