Considerations When Selling to a Competitor

April 27, 2017Selling a Business

Insert one of the most tenuous dances in the selling process: Considering selling to your competitor. Not every business will face this fragile back and forth, but owners venturing into this territory will walk a fine line between divulging too much and raising the curtain just enough to showcase the value.

If competitors have made it into your buyer profile, heed these considerations before fully opening your books and giving away your secret sauce.


Qualify, Qualify, Qualify

Even before confirming your business is on the market, you need to know that the contending owner is actually in the market. It’s possible they are just fishing around to see your margins, identify your manufacturers, copy your outsourcing strategies and/or glean trade secrets. There’s also the risk of trying to steal customers or out your impending exit to your key employees.

At ECG, we qualify any potential buyers before divulging too much information. Qualifying a buyer is more about a feel than a science.  Buyers feel like they are in the driver’s seat sometimes and won’t always be truthful with their intentions. The key is to find the right questions, listen to the way they answer them and listen to your gut.  It’s better to walk away from a “potential” buyer than open yourself up to your competitor.


Identify the Best Buyers

Agreeing to sell to a competitor or another business doesn’t mean that you pull out the loud speaker and announce it to the world. It still involves strategically identifying the best business to sell to. If you’re a Greek restaurant in San Diego, it most likely doesn’t make sense to sell to the kebab place down the street. Instead, an existing Greek restaurant in Los Angeles looking to expand south makes a prime buyer.

A competitor is not necessarily someone who does the same thing as you but someone who can take business away from you if they learned the inside trade secrets.  Many times a competitor may want your location, your distribution, your product, your machines or your employees.  They are great buyers when you can find them but you need to go in with your eyes wide open.

Here we also need to identify the key assets and main value points other businesses may find important. Some businesses approach buying another business because they want a specific infrastructure, are looking to move something in-house, or are expanding opportunities. Others want the value associated with the existing brand.

For example, a culinary training program purchasing a catering company creates a natural extension for the business. They utilize the existing structure and can place their trainees.


Eliminate Nonstarters

We’ve all been in business long enough to know not everyone goes about their work with the same integrity or work ethic. Many owners have had dealings with other businesses that left a sour taste in their mouth. From poaching employees to unscrupulously going after clients to mistreating team members, it’s likely you’ve had to draw a line in the sand with at least one business. No matter the situation, you would not do business with them again, much less consider them as a buyer. They are snakes.

At ECG, we work with our business owners to understand which businesses are off the table from the start. This allows us to quickly narrow in on the best options. We also provide a list of the potential buyers to the owner for approval before we reach out.


Protect the Confidentiality of the Business

As we mentioned at the start, selling to a competitor means walking a fine line. You need to give them enough information to make an informed decision on purchasing the business without putting your business at risk.

At Exit Consulting Group we take your business confidentiality seriously. Through partnering with our experienced team, you can rest assured that you don’t put your business at risk while opening the option of selling to a competitor.

If you’re looking to start exploring your exit options or anticipating transitioning out of the business in the next few years, contact us today. We build out customized strategies to maximize your business potential on the market.

Regardless of whom you sell to, a successful exit strategy starts with assembling the best team to execute your plan. Let us show you how partnering with Exit Consulting Group is the first step to building your ideal exit.