What Is a Competing Bid?
A competing bid is an acquisition proposal submitted by a third party after an initial offer for a target company has been publicly announced or privately communicated to the target’s board. Competing bids are the mechanism through which the M&A market discovers the true value of a target — by introducing competitive tension that forces acquirers to pay a price closer to the target’s intrinsic worth.
For the target’s board, a competing bid creates both an opportunity and an obligation. The fiduciary duties owed to shareholders — particularly under the Revlon doctrine when a sale is underway — require the board to evaluate all credible proposals and pursue the path that maximises shareholder value. Failing to engage with a superior competing bid can expose directors to personal liability.
How Competing Bids Emerge
Organic Emergence
A competing bid often surfaces naturally when a public deal announcement signals that a company is “in play.” Potential acquirers who had previously considered the target but not acted may be prompted to submit an offer, knowing that:
- The target board is open to a transaction
- Due diligence materials may become available
- The initial bid establishes a price floor
Solicited Competing Bids
Target boards and their financial advisors may actively seek competing bids through:
- Pre-signing market check — canvassing potential buyers before signing a definitive agreement
- Go-shop provision — a contractual right to solicit competing offers for a specified period (typically 30-60 days) after signing
- Passive market check — announcing the deal publicly and allowing the market to produce competing offers without active solicitation
Deal Protection vs. Competition
The tension between deal protection for the initial bidder and the board’s duty to consider competing offers is central to M&A law and practice:
| Protection Mechanism | Effect on Competing Bids |
|---|---|
| No-shop clause | Prohibits target from actively seeking competing bids |
| Go-shop provision | Allows target to seek competing bids for a limited period |
| Break-up fee | Financial penalty payable to initial bidder if target accepts a competing bid (typically 2-4% of deal value) |
| Matching rights | Initial bidder gets the right to match any competing offer before the target can terminate |
| Lock-up agreement | Grants initial bidder an option on target assets or shares |
The Fiduciary Out
Nearly all definitive agreements include a “fiduciary out” — a provision allowing the target board to terminate the agreement and accept a superior proposal if the board determines, after receiving legal advice, that failing to do so would constitute a breach of its fiduciary duties. The fiduciary out is the legal safety valve that preserves the board’s ability to respond to competing bids.
Competing Bid Dynamics
When a competing bid emerges, several dynamics accelerate:
- Information access — the competing bidder requests access to the target’s data room and due diligence materials
- Price escalation — the initial bidder may increase its offer, triggering a potential bidding war
- Matching rights — the initial bidder exercises its contractual right to match or exceed the competing offer
- Board evaluation — the target board and its advisors compare the bids on price, certainty of closing, financing, regulatory risk, and strategic fit
- Resolution — the board selects the winning bid, and the losing bidder receives any applicable break-up fee
According to academic research published in the Journal of Financial Economics, competing bids increase the final acquisition price by an average of 15-25% relative to the initial offer, demonstrating the significant value that competitive tension creates for target shareholders.
The Auction Alternative
Some sellers avoid the competing bid scenario entirely by running a structured auction process from the outset. In an auction, multiple potential buyers submit bids simultaneously, creating competitive tension from the beginning rather than relying on post-announcement market dynamics. This approach is common in private equity exits and sell-side advisory mandates.
APAC Context
Competing bids occur across Asia Pacific M&A, with regulatory frameworks that shape the dynamics:
Australia — the Corporations Act and Takeovers Panel provide a robust framework for competing bids in public M&A. A rival bidder can lodge a competing takeover bid at any time during the original offer period, and the target board must provide an updated recommendation. The Takeovers Panel can intervene to ensure that the competitive process operates fairly.
Hong Kong — the Securities and Futures Commission’s Takeovers Code requires that competing bids receive equal treatment. If a competing offer emerges during a takeover, the original offeror has the right to revise its terms, and both offers remain open for acceptance. The Code’s “auction procedure” rules govern situations where two or more bidders compete for the same target.
Singapore — the Securities Industry Council’s Singapore Code on Take-overs and Mergers mirrors the Hong Kong approach, with specific provisions ensuring that competing bidders have equal access to information about the target and that shareholders have adequate time to evaluate competing offers.
“The possibility of competing bids is what keeps deal pricing honest,” notes Daniel Bae, founder of Amafi. “In APAC markets, where regulatory frameworks actively facilitate competition between bidders, sell-side advisors should always consider whether a structured process can generate competitive tension.”
Running competitive M&A processes across Asia Pacific? Amafi helps companies and investors maximise deal outcomes through data-driven buyer engagement. Learn more.