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Selling Your Company To A Competitor

When Enemies Become Friends

When Enemies Become Friends

Private business owners are understandably nervous about approaching a competitor when it is time to sell their company – but a competitor is often in the best position to pay a full price. As an experienced UK business broker how do we resolve this problem?

We recently completed the sale of a private company to its biggest competitor. At the start of the process the owner was extremely nervous about involving the competitor. He feared the competitor would use any information provided to steal customers, but there was also an element of pride. The two companies had competed for almost 30 years and at a certain level it just felt like giving in.
 
How Did This Situation Resolve Itself?
 
To be honest we tiptoed around the competitor for the first few weeks of the sale process. We advertised the business and contacted a lot of companies with related products, adjacent territories and similar customers. Then the inevitable happened. An adviser to the competitor saw our advertisement on a corporate finance bulletin board and brought it to his client’s attention. The Managing Director of the competitor called me in person the following day, certain he knew which company was for sale, and asking to be part of the process.

By this time we had a couple of offers on the table. Decent offers in the middle of the valuation range but less than our client was hoping for. I met with the client on a Friday afternoon and we discussed the options. Potential buyers were still coming to initial meetings and we might well get more offers. One of these new offers might be higher; or perhaps through negotiation or an auction we could squeeze more out of one of the existing bidders. We had options, but whichever way we looked at it there was no doubt that the competitor would get the most benefit from acquiring the company, and could best afford to pay the price we were looking for. It came down to a simple calculation – was our client prepared to take a calculated risk to secure a better deal? He wanted to think about it over the weekend.
 
Why Are Competitors Often The Best Buyers?
 
It’s not difficult to understand why the competitor could afford to pay more. Duplicate administration costs could be squeezed out and eventually the combined company could be consolidated into one set of premises. There was some overlap in the customer base, which would need to be handled carefully, but many new customers for the competitor’s broader product range. These were real profit improvement possibilities for the competitor, but also an important defensive element. Between them the two companies dominated the local market. The competitor feared a strong new opponent buying into the region.

When I arrived at the office on Monday morning there was an email in my inbox giving the go ahead to involve the competitor. After a brief spat over a beefed up confidentiality agreement things moved very quickly. Within a fortnight we were in face to face negotiations trying to finalise price and payment terms. The two sides had a lot of contacts and experiences in common, and quickly built up a good relationship. To my client’s surprise the buyers already new most of his customers, but were desperately keen to secure his help in handing over the relationships he had built up over many years. So keen they ended up paying a better price than I expected.
 
What Are The Broader Lessons From This Specific Situation?
 
First of all direct competitors will probably have the most potential synergies with your company, and be in the position to pay the best price. If you leave them out of the process you risk leaving money on the table. Secondly, the seller’s fear that competitors will use any information they disclose to attack customers is often exaggerated. We always hold back specific information on customers until buyers start to spend money on lawyers and solicitors to complete a sale, but in reality a competitor will already have a good idea about your customer base. Don’t underestimate the other side’s fear that they will not be able to secure the customer base they are paying for. This can often work to your advantage.

 

If you are interested in finding out more about these and other issues relating to the sale of a private company one of our business sale experts would be delighted to talk to you in complete confidentiality. Click CONTACT ME to book an initial phone conversation or call us on 01604 432964.

 
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