Selling to a competitor: What to consider | O'Keeffe & O'Malley

Selling to a competitor: What to consider

Aug 16, 2017

When it comes to selling your business, a competitor may be the last person you’d put on your list of potential buyers. But that rival might be worth another look. Under the right circumstances, selling to a competitor can be a smart move.

Your business could be very valuable

A competitor is already familiar with your industry, your business, and your place in the market. And your intellectual property, market share, and key employees can make your business more valuable to a competitor than it would be to a buyer off the street.

Someone already in the market may be willing to pay a premium to make a strategic acquisition. Plus, buying a competitor can be a huge ego boost.

However, it’s possible for a rival to feign interest in your business in order to acquire sensitive data. And it can be hard to tell lookie-loos from serious buyers. That’s why it’s important to have your ducks in a row before you let a competitor know you’re looking to sell.

Control the process – and the information

If you approach a competitor, they are immediately at an advantage. They know you’re ready to sell – but what do you know about their position? There are ways that an advisor can approach them without your competitor knowing who you are.

That’s why you need to have your valuation analysis completed, offering memorandum prepared and your team in place before you visit with anyone about selling. And although working with a mergers and acquisitions (M&A) advisor is usually your best bet, it’s absolutely necessary when you’re selling to a competitor.

Working with an M&A advisor, an attorney, and a CPA can protect you during the sales process. Sure, it’s an investment, but now is not the time to skimp. These professionals can help you with a rock-solid nondisclosure agreement (NDA) and a clean environment – physical and/or online – for sharing confidential info.

Ah, yes. Sharing information. It’s a necessary part of due diligence. But when you’re selling to a competitor, it has added risk. Your M&A advisor will help you provide the needed information, at the appropriate time in the process, without oversharing. It’s also a good idea to do some reverse due diligence. Make sure your competitor is a capable of purchasing your business. And sometimes the process can be sharing of mutual data so both parties are at risk or get some benefit.

Work with the right people

Your M&A advisor has done this before and can guide you through the sale. Together, you can set the tone and the pace of the due diligence, negotiations, and meetings. But like most situations, it’s important to listen to your gut.

If you have a congenial relationship with your competitor, selling to them might be a good move. But if you sense something isn’t quite right, pay attention. Ask why your competitor is interested in your business. If their rationale doesn’t make sense, be prepared to walk away.

Are you considering selling to a competitor? Let O’Keeffe & O’Malley help you explore your options. Give us a call at 913-648-0185 for a confidential meeting.