How to sell your business to a competitor
When you’re ready to retire, or exit your business, you may think selling to a competitor is your only option.
But competitors are seldom your best buyer. They’re rarely willing to pay top value because they’re already established in the market. They can’t see that your “secret sauce” is anyhow better than theirs, so they try to strip away a lot of the goodwill other buyers might pay.
Plus, selling to a direct competitor can be dangerous. If you enter into discussions with a competitor and the deal doesn’t go through, they can damage your business down the road.
Selling to a competitor takes special care and due diligence, so keep these best practices in mind:
Bring other buyers to the table first. When marketing your business, your advisors should use a tiered outreach strategy that contacts competitors last.
In the pool of potential buyers, your competitors can make decisions the fastest. And if they’re not the end buyer, we want to give them as little time as possible to react.
Maintain control. When you run a full process that brings in multiple offers, you retain more leverage. Results are better when you’re the one setting the pace for offers, management presentations, and negotiations.
Lock down confidentiality. Have an experienced M&A attorney draft a non-disclosure agreement (NDA). This will help protect your business if the deal fails in negotiations.
Beyond an NDA, your advisors can also set up a secure deal room online. This allows you to track which would-be buyers have accessed your information. Additional protections can lock-out printing and revoke access at the touch of a button.
Vet intent. Before revealing information to any potential buyer, your advisors will gauge their intent. Typically that means requiring the buyer to share some background and financial information of their own. “Tire kickers” usually aren’t willing to share their own confidential information, so this helps ensure a competitor has real interest and wherewithal to make an acquisition.
Know what to say when. When selling your business, there comes a point in the process when you’ll have to reveal sensitive information. Your advisors can provide coaching so you know what’s appropriate and necessary to reveal early on and which information (like customer lists and proprietary trade secrets) should remain under wraps until late in due diligence.
Selling a business is already rife with potential pitfalls and complications. Adding a competitor into the mix only amps up the risk. Seek professional counsel from experienced business intermediaries who can help protect you and your business value.
By Scott Bushkie
Scott Bushkie Managing Partner, Founder, CBI, M&AMI, Fellow of the IBBA.
With more than 20 years in the Mergers and Acquisitions (M&A) industry, Scott is a recognized leader in the field, providing exit strategies, business valuations, and M&A advisory services to business owners in the lower middle market. He has successfully executed sales to domestic and international buyers, private equity firms, family offices, and strategic buyers. Follow DealCoach on Linkedin