Bid-Ask Spread (Auction)
Private Equity glossary · Private Equity Fundamentals
Definition
The gap between buyer's price expectations and seller's reserve price in a PE-controlled auction; closes during diligence as buyer learns more.
Bid-Ask Spread (Auction) in plain English
When a private-equity firm runs an auction to sell a company, the bid-ask spread is the gap between the lowest price the seller will accept and the highest price the buyer is willing to pay. Early on this gap is often wide because the buyer doesn't yet fully trust what they're getting — like haggling over a used car before you've looked under the hood. As the buyer digs through the company's books during "diligence" (their careful inspection period), they learn what it's really worth, and the two sides usually drift toward a price they can both live with. When the gap closes, the deal can happen.
Also called: Auction
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