Today's sellers prefer cash deal to pricey auction

By Mathieu Robbins

LONDON (Reuters) - As borrowing gets harder and buyout firms lack the funds for M&A auctions, the game for a seller is no longer to encourage as many bids as possible, but rather to nurture a single successful one.

The auction of Spanish construction and services group Ferrovial's airport retail assets, for example, attracted almost none of the private equity interest that would have underpinned such an auction a year ago, but was a fight between three trade bidders.

Ferrovial got a good price for the assets, according to analysts, at 715 million euros ($1.1 billion). But this was by focusing on a smaller number of bidders and finding a winner, Italian catering firm Autogrill, which took several weeks to put together its financing in current market conditions.

"In M&A auctions now it's often no longer about getting as many people as possible in and seeing who will offer to pay most, it's about finding someone who actually has the money," said one senior European investment banker.

The recent mergers and acquisitions boom was an asset seller's dream, as cash-rich buyout firms fought their way through complex auctions processes in a rush to buy their targets.

Sellers and the investment bank advisers used all sorts of tricks, playing off bidders against each other to push up valuations. Lending banks, knowing bidders' success depended on their terms, frequently waived covenants in the hope this would get them the deal.

But among the worries now faced by investment bankers as the M&A boom buckles under pressure from the credit crunch is that buyers are just no longer as enthusiastic. And if they are enthusiastic, that they can't afford to pay up.

"We are missing the irrationality of people with cheap debt," said a second senior European M&A banker.