Exit Blockages in Private Equity: Public Auction as a Legally Compliant Route for Shares and Collateral
Executive Summary
In the current private equity market, robust realization and enforcement mechanisms have become increasingly critical. Where conventional exit routes are frustrated by valuation dislocation, financing constraints, adverse stakeholder dynamics, or compressed market windows, recoverable value depends not only on the quality of the asset, but on the legal and procedural framework through which that value can be realized. This is particularly relevant in cases where enterprise value is derived less from tangible assets and increasingly from business models, contractual rights, and intellectual property.
In these circumstances, a privately conducted public auction may offer a legally compliant, structured, and rapidly executable pathway for exposing shares, intellectual property rights, and other value-bearing positions to open market competition, thereby providing a robust solution to exit blockages.
Why Exit Execution Increasingly Turns on Process
The international private equity market has changed structurally. In earlier cycles, value creation was driven in large part by capital inflows, strong deal activity, and multiple expansion. Today, the emphasis has shifted toward the realization of value already built within existing portfolio companies. Across many portfolios, substantial assets remain locked in well beyond the original underwriting case. Distributions are delayed, holding periods are lengthening, and the pressure to deliver a predictable liquidity outcome continues to increase.
Private equity, however, relies on predictable exit capability. Distributions to limited partners, a credible DPI trajectory, refinancing capacity, and future fundraising all depend on the ability to dispose of or otherwise realize portfolio investments within an underwritten timeline. That mechanism is now under growing strain. Valuation gaps between sellers and buyers remain wide, acquisition financing is more restrictive, transaction windows have become narrower, and buyers continue to apply firm pricing discipline. In this environment, the procedural management of exit backlog is no longer just an operational edge; it has become a capital-markets-relevant question of competitiveness.
These dynamics are becoming even more pronounced in the German mid-market. A growing number of portfolio companies are exceeding the usual holding period parameters without a reliable exit being achievable in the near term. Economic value remains intact, but its conversion into liquidity is increasingly delayed. With each further extension, decision pressure, structural complexity, and conflict sensitivity continue to rise. This is particularly true where shareholder positions have hardened, security structures overlap, refinancing deadlines are approaching, or multiple stakeholders are pursuing competing realization objectives.
In such circumstances, reliance on a better market window will generally no longer suffice. Nor will another round of negotiations be enough where price formation is structurally blocked. What matters instead is a process capable of realizing value in a legally compliant and transparent manner, with a dependable degree of finality.
The Practical Value for Lenders, Advisors, and Decision-Makers
The practical value of this approach lies not in abstract doctrine, but in its direct answer to an operational question: how can blocked value be realized in a robust manner in a stressed market environment where open price negotiations no longer produce finality, standalone valuations remain open to challenge, and further renegotiations merely generate delay?
This is precisely where the value of a procedurally robust realization pathway becomes apparent. It shifts price formation out of a conflict-prone negotiation setting and into a documented competitive process, strengthens the defensibility of the outcome vis-à-vis creditors, investors, corporate bodies, advisors, and other stakeholders involved, and delivers not only an economic result, but a legally robust conclusion.
For practice, this is decisive. In contested realization scenarios, subsequent challenges do not typically focus on the price achieved alone, but on the path taken to achieve it. The points attacked are usually the scope of the market approach, the choice of process, the equal treatment of potential bidders, the transparency of execution, or the plausibility of the outcome. What is therefore determinative is not the price alone, but the quality of the process by which that price was produced.
Market-Based Price Discovery Through Process Rather Than Protracted Valuation Disputes
In blocked exit scenarios, the issue is often not the absence of asset value, but the absence of finality. That is precisely where many processes fail. Valuation methodologies, parameter assumptions, and underlying data sets remain contested. Divergent valuation approaches, indicative offers, financing contingencies, due diligence reservations, and closing conditions continuously defer decision-making into the future. What appears to be a market process often remains, in reality, open to further adjustment and renegotiation.
This is inadequate for the parties involved, particularly in contested situations. The purported market price remains vulnerable to challenge because it has not emerged from a legally structured competitive process, but from a negotiation-driven architecture with an open-ended outcome. As a result, directors, creditor representatives, security agents, and advisors remain exposed to significant challenge and liability risk, particularly with regard to price adequacy, process selection, and the equal treatment of interested parties.
A privately conducted public auction addresses precisely this point. It shifts price formation out of bilateral or multilateral negotiation and into an open, documented, and non-discriminatory process. Deadlines, market outreach, and the award decision follow a recognizable procedural order. The decisive question is therefore not who presents the more persuasive “fair value,” but whether the process produces price formation in a legally compliant manner and reaches a dependable final outcome.
Public Auction as a Legally Compliant and Procedurally Robust Realization Option
A privately conducted public auction is not merely a marketing measure, nor is it a bidder process dressed up in elevated language. It is a legally defined procedure with its own structure and independent effect. Its purpose is to bring assets to market — in particular shares and intellectual property rights — through an orderly and transparent process, thereby converting competition into a reliable mechanism of price formation. This elegant route, deliberately provided for by the legislator, cannot be replaced even by the most elaborate contractual frameworks, however heavily they may rely on complex bidder procedures, M&A structures, or carve-out architectures; none of those constructions substitutes for a dependable, competitively generated, and market-validated price formation mechanism.
Its particular value lies in the interplay between procedural order and market effect. The process does not depend on situational bargaining power, bilateral pressure, or opportunistic recalibration. Instead, it establishes a clear framework in which interested parties are approached on a non-discriminatory basis, bids are brought into open competition, and award decisions are made in a transparent and traceable manner. For decision-makers, this marks a fundamental shift in perspective: price is no longer driven by negotiation, but by process.
Distinguishing Public Auction from Distressed M&A Sale Processes and Notarial Auctions
Particular terminological precision is required in the distressed M&A context. The term “auction process” commonly used there does not denote an auction in the legal sense, but a structured bidding process. It may be market-standard or transactionally expedient for certain participants in the process, but it typically does not produce the clear legal effect of a public auction. As a rule, it lacks the award mechanism of a legally constituted auction process that does not merely facilitate price formation, but brings it to finality.
In such processes, pricing is typically determined on the basis of indicative or conditional offers. Those offers are often subject to reservations and remain dependent on due diligence findings, MAC clauses, financing availability, investment committee approval, or other internal authorizations, thereby preserving ongoing scope for adjustment and renegotiation. What may formally appear to be a competitive process therefore often remains open in terms of outcome quality. A published bidder process does not, in itself, create a procedurally reliable market. That is instead produced only by a process conducted under the direction of a publicly appointed and sworn auctioneer, bound to independence, freedom from instructions, and conscientious execution.
Notarial auctions require a more differentiated assessment. A notary may conduct voluntary auctions; in the case of GmbH shares, it must also be taken into account that their transfer is, as a matter of principle, subject to notarization and that section 23 GmbHG expressly contemplates the public auction of a share also by a notary. That, however, establishes only the formal admissibility of the notarial auction route; it does not, in itself, create a sufficiently deep, open, and competitively robust market. Under section 1237 BGB, statutory notice is tied to a minimum level of publicity. It satisfies the formal requirement, but guarantees neither reach, nor market depth, nor reliable real-time competition. Although the legislator has now modernized the framework through section 383 BGB n.F. by expressly recognizing virtual and hybrid public auctions, a process that lacks broad market access, a transparent livestream, and the ability to place online live bids in real time may remain legally permissible while still falling short, in its price formation and execution function, of the degree of market-validated price discovery and execution certainty on which private equity sponsors, lenders, and distressed investors depend in recovery and exit decisions.
That is precisely where the functional distinction lies: the publicly appointed and sworn auctioneer represents a process that does not merely organize competition, but translates it into transparent, market-validated price discovery and, by extension, into robust execution certainty.
Public Appointment and Sworn Status as a Source of Procedural Authority
The robustness of a process depends not only on how it is conducted, but also on the status of the actor conducting it. Deutsche Pfandverwertung acts in the capacity of a publicly appointed and sworn auctioneer. With the amendment to section 383 BGB effective 1 January 2025, the legislator now expressly refers to the publicly appointed and sworn auctioneer. The class of persons authorized to conduct public auctions is therefore delineated not only in practice, but also at the normative level.
This amounts to more than a matter of professional classification. By doing so, the legislator makes a policy choice in favor of a market-oriented, commercially grounded, and at the same time orderly realization process. In distressed contractual relationships, the balancing of creditor and debtor interests is not meant to be left to the contingencies of informal negotiation dynamics, but to be channelled into a structured and transparent procedural framework. As the statutorily prescribed default route for collateral enforcement under sections 1235 et seq. BGB, the public auction thus creates legal clarity and finality. Value is determined through competition and brought to completion by the award as the constitutive legal act.
For legal advisors, lenders, and other decision-makers, this institutional procedural authority forms a material part of the practical value of the process, particularly in contested situations.
Speed, Transparency, Liability Mitigation, and Finality
The practical appeal of a public auction rests on several effects that must be considered together in exit and collateral scenarios.
Time is an independent value driver in these situations. A public auction process establishes a binding procedural framework with clear deadlines and a high degree of execution discipline. This can be particularly decisive where fund dynamics, covenant pressure, refinancing constraints, or progressive value erosion require timely realization.
Transparency is created through open market outreach, non-discriminatory access, and a clearly traceable award logic. It is precisely this transparency that reduces the scope for subsequent challenges and improves the defensibility of the process vis-à-vis stakeholders, committees, creditors, and advisors. It is not merely an incidental feature, but a structural advantage of the process.
Liability mitigation follows from the procedural order, the complete documentary record, and the particular status of the publicly appointed and sworn auctioneer. Where the realization route is orderly, open, documented, and normatively anchored, the chosen course of action becomes materially easier to justify. For corporate bodies and advisors, this can carry significant weight when selecting the appropriate process.
Finality, in turn, is achieved through the award made in competition and the resulting transfer of title. For the sale of a GmbH share by way of public auction, section 23 GmbHG contains a distinct statutory regime. In the context of a public auction, the auction record and the transfer agreement replace the notarial recording of the award and the transferability of the shares. It is therefore misguided to treat the notarial transfer form required under section 15 GmbHG as a schematic obstacle to the public auction of shares.
Relevance in Practice for Equity Interests, Security Interests, and Intellectual Property Rights
The practical reach of a public auction is not confined to traditional pledged chattels. It becomes particularly relevant where value-bearing, yet conflict-laden positions are to be brought into an orderly realization process. This applies in particular to shares, share pledge structures, intellectual property rights, and other asset-backed legal positions where purely informal or exclusively transaction-driven marketing does not produce a sufficiently robust outcome.
In practice, structured bidding processes in the M&A context, notarial structures, or, under narrowly defined conditions, internal workout models are often used to realize such positions. In scenarios marked by heightened conflict exposure and liability sensitivity, however, careful consideration should be given to whether a process-based and competitive mechanism of price formation may be preferable. This is particularly so where the quality of the process itself may later become the subject of legal or commercial scrutiny.
Cross-Border Structures and German Jurisdiction
This issue is of particular practical relevance in international financing and investment structures. Private equity and lending arrangements frequently involve cross-border elements: foreign holding chains, share pledge arrangements, international creditor groups, layered intercreditor structures, and parallel interests across multiple stakeholders. In such scenarios, the question is not merely whether an asset exists, but whether a robust realization pathway can be established within German jurisdiction.
It is precisely in this context that the conversion of complex international fact patterns into a legally compliant German realization process can prove decisive. Deutsche Pfandverwertung is specifically equipped to manage such scenarios in a structured manner, to channel the realization of shares and intellectual property rights into an orderly procedural framework, and to leverage the market effect of a public, non-discriminatory bidding process.
For lenders, security agents, and their legal advisors, the practical value lies in having, even in cross-border structures with a German nexus, access to a realization mechanism that does not depend on private bargaining leverage alone, but is grounded in procedurally organized market-based price formation, documented execution, and legally compliant finality.
Conclusion
The current exit environment in the private equity market increases the value of robust procedural solutions. Where traditional transaction routes are blocked by valuation gaps, financing constraints, stakeholder conflict, or narrow market windows, it is no longer sufficient to continue price discussions or defer decisions. What is required instead is a process capable of realizing value in a legally compliant and transparent manner, with a dependable degree of finality.
In suitable scenarios, a privately conducted public auction can provide a structured, market-oriented, and liability-mitigating realization pathway. For lenders, advisory firms, security agents, and their legal advisors, the choice of process is therefore not a mere formality, but part of the substantive solution. Particularly in a market environment marked by increased realization pressure, it may prove functionally to be the more compelling form of realization.
Further information on collateral enforcement — practical, strategic and legally compliant — can be found on our website:
www.deutsche-pfandverwertung.de
We are publicly appointed and sworn auctioneers with many years of experience in the field of collateral enforcement.
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