Once you let the world know your intentions to sell your business, you will notice that many of your competitors are also interested in acquiring it. Since buying your business would also mean getting rid of a rival company, they even tend to bid higher amounts.
While the offer might seem like a good deal, selling your business to a competitor might take a lot of work, therefore, you need to explicitly grasp how to sell your business to a client before you trust a buyer with your company.
Before you get into the methodology of selling your company, you need to understand why your competitors are showing such interest.
You don’t need to wait for a formal announcement that a competitor wants to buy your company. Your best clues come from their behavior patterns over the months before they reach out.
Their offer can precede a few signals, such as:
You'll want to catch these patterns early because they give you time to prepare your exit on your own terms.
According to Barbara Findlay Schenck, author of “Selling Your Business For Dummies,” not every competitor who shows interest in your company intends to buy it. Hence, you must assess the motives of the competitor company before engaging in any discussion.
There is a chance that the rival company is trying to extract lucrative information from you under the guise of being a potential buyer.
Therefore, to qualify your buyer or ensure they are trustworthy:
Apart from basic details, ensure it has numerous questions about the competitor company’s past acquisitions and financial position. If the buyer shows no interest in answering these queries, it may indicate they have no real interest in buying your business.
Once you have filtered out the genuine buyers, the next step is to get the best deal for your business.
While every business will have its unique selling point, the strategy to sell them remains relatively the same. Here are the steps you need to follow to negotiate an advantageous sale.
When dealing with something as big as a business, word-of-mouth means nothing. You need to ensure every aspect of your company has legal protection so that you are never in a disadvantageous situation.
The best way to sell a business with legal protection includes:
We do not recommend you price your business with your gut feeling. You will either end up underpricing your business or something so outrageous that no one shows interest in buying it.
A professional business valuation service would appraise your business based on the latest market facts, the company’s historical and projected financial performance, expansion opportunities, and market compatibility.
Use Exitwise’s Business Valuation Calculator to determine your company’s value in real time.
As discussed above, some of your rival companies might only be interested in your business’s confidential information. Hence, make every potential buyer sign an NDA before you engage in any kind of discussion with them.
Kindly note that the language used to state the clause in your NDA is extremely crucial, as one can interpret it differently in different states.
It is not unlikely for a seller to have doubts about their potential buyer’s ability to acquire their business. Should you have such reservations, try to gather information and check the competitor company’s financial limitations to confirm the same.
If the company lacks funds or has an enormous existing debt, you should consider it before negotiating with them.
Although the federal antitrust law limits individuals from sharing specific detailed information, it is best to take additional precautions.
If possible, break the due diligence into parts and impose deadlines for the prospective buyer, compelling them to sign off after the completion of every stage.
For example, you should defer from releasing competitive details about your business until the later stages of the negotiation.
The goal is to find the best-suited deal for you. However, this doesn’t always mean the one offering the most money, but the one fitting your business goals.
Here’s how you need to handle the acquisition offers you receive from competitor companies to find your ideal match:
A professional business exit advisor would help you review all the offers on your table and segregate the ones that match your desired outcome.
Further, they will support you during the negotiation as they know more about the different nuances of selling your business to a competitor.
The best way to sell your business to a competitor is by controlling the negotiation throughout the process. You can make this happen by evaluating who is sitting across from you on the negotiation table.
Your M&A advisor can help you assess this team and ensure you are the only one steering the wheel.
A break-up fee will act as a safety net if the buyer decides not to proceed with the negotiation.
Typically, the break-up fee ranges between 1% and 3% of your deal’s overall value. You can calculate this by adding the amount you spent on all the resources to ensure a smooth M&A process.
How you communicate data during the negotiation process can decide its outcome. Not only do you need to ensure your documents have the correct terminology, but your method of releasing information is also critical. Certain things you need to take care of are:
Your employees play a crucial role in your business. They have given their time and effort to your business. Hence, it is only fair to inform them about your plans in advance and include their well-being in your M&A contract.
Make sure your buyer knows if your employees will continue working or not. Such information will help the buyer build a new team of employees aligned with their requirements.
Utilize official announcements and messages to ensure a pristine public impression, as that can also influence your business’ valuation.
Before you disclose your intentions to sell your business, publish case studies, press releases, and posts about achievements to substantiate your brand's high value.
Individuals experienced in dealing with M&A procedures would ensure a safe and successful sale.
While there isn’t any end to hiring experts for your M&A deal, the following will suffice your needs:
Mergers and acquisitions involve an array of legal formalities, and hiring an expert attorney will ensure you tread through them without any hiccups.
The attorney will draft your M&A NDA contract and also assist you in deciding what information you should release at a given stage.
Moreover, you can ask the M&A attorney to check how many litigations the buyer’s company is involved in. They will let you know if such litigations should be a reason for you to seize the negotiation.
Selling a business is already a complicated endeavor. The fact that your buyer is a competitor only makes matters trickier.
You can effectively navigate these complexities by collaborating with a financial expert or a broker. These individuals know how to use the ongoing trends in the market to their advantage.
Even if you do not know how to sell your business to a competitor, a broker will ensure you get your business’s worth.
We at Exitwise help you hire a dream M&A team to get you the best exit deal. Schedule a call with us today, and let us interview and onboard a team who will maximize the sale of your company.
After you have made sure of the true intentions of your buyer and framed the ideal deal, the last step is to finalize the transition. Discussions like your role and authority over the business post the M&A are done during this stage.
It is best to have the professional experts you have hired to negotiate this last bit and reach a beneficial point for both parties.
For example, you can agree to hold the payment for a set period. The buyer will go through all the transition procedures and test-run your business. Should everything go well, you will receive your payment, and your company will officially become theirs.
Selling your business to a competitor is a layered process that demands substantial time. While there are many advantages, sometimes putting your business up for sale can lead to adverse situations.
A competitor buyer already understands your industry, your customers, and often your margins. You can turn that familiarity to your advantage if you hold control of the process from day one.
Here's how to protect your leverage:
Your leverage depends on preparation. The right M&A team helps you hold it from start to finish.
Consider these pros and cons of selling your company to a rival business before you make any permanent decision.
Having your competitor as a buyer is beneficial because they would:
They see your business as competition. Hence, they would be more desperate to acquire and control your company than others.
Unusually, business competitors are already on the lookout for buying rival companies. So, doing as much as putting the word out will bring them your way.
Once merged, you can access exclusive resources of each other’s brands. The buyer would willingly offer you that to ensure the business they bought is bringing them profit.
You can add avenues to collaborate in the future and bring in better revenue based on how you negotiate.
Selling your business to a competitor can also mean they:
Some competitors are uninterested in buying your business and want your secrets. If you do not choose your buyer wisely, you may endanger your company with data theft.
Companies would often buy their rivals only to shut their companies down and monopolize the market.
If the buyer deems it necessary, they can very well let go of your team and set up one of their own to strengthen authority.
You might have to face severe tax implications based on your respective tax jurisdiction and the nature of your sale.
While these cons are very likely scenarios, you can avoid them all by consulting professionals who have dealt with such cases for years.
Discuss your concerns with Exitwise and find solutions for all your issues in 3 easy steps.
Your sale price is only one piece of the puzzle. The terms you agree to will determine how much of that money you actually keep and when you receive it.
Here are a few deal structure tips that protect you:
You can handle a sale on your own, but a competitor deal raises the stakes beyond a typical deal. The right advisor adds a layer of protection that frees you to run your business while the experts manage the process.
Here's how to work with the right advisory team:
Reach out to us to build your dream M&A team and create the exit you deserve.
Most failed competitor deals don't fall apart over price. They collapse because of avoidable errors that happen well before the close.
You must watch out for the following missteps:
Still have doubts? Here are answers to some of the most frequently asked questions about how to sell your business to a competitor.
Your biggest risk is exposing confidential data to a buyer who never closes. A competitor who walks away with critical information, such as your customer list and SOPs, can use that intel against you in your market.
You also face the risk of undervaluation because a buyer who knows your industry well has the leverage to push your price down.
Most competitor acquisitions take 6 to 12 months from the first serious conversation to close. Your timeline depends on deal complexity, the depth of due diligence, and how quickly both sides agree on terms.
You can shorten this window by preparing your financials and building your M&A team before the process kicks off.
Follow the steps mentioned below to approach a competitor to sell your business effectively:
Yes, you can sell a part of your business to a competitor. In many cases, business owners can extract more by taking this route. There are two ways of selling our company in portions:
Selling a business can seem promising if you plan to retire or move forward with another venture. However, when your goal is to get the most value for your company, your target buyers are your competitors.
If you have decided to sign an M&A deal with a rival company, take notes from this guide before taking any hasty step. As much as it seems like a lucrative idea, a competitor as your buyer might also become your nightmare.
You need experts to guide you throughout the process to ensure no mistakes are made. So book a call with us today, and let us hire your team of experts so you can focus on your business.
Let Exitwise introduce, hire and manage the best, industry specialized, investment bankers, M&A attorneys, tax accountants and other M&A advisors to help you maximize the sale of your business.
