When considering selling your business, a logical consideration is to approach your competitors to see if they have an interest in increasing their footprint in the marketplace with an acquisition of your company. In many industries it makes sense to grow through acquisition, and buying a competitor can be a quick and effective opportunity for growth. But the reality that sellers face is that just the initial step of discussing the possibility of a sale with a competitor, especially one that has no interest in an acquisition, can potentially open the floodgates of talk and gossip within your industry.
Confidentiality is a key aspect of a business sale as most sellers don’t want their employees, customers, vendors, competitors, or others to know that a possible sale is contemplated. But when an acquisition could be a good fit for a competitor, how can a business owner walk the tightrope between reaching out to those competitors as prospective buyers versus those who simply want to learn more about your operation?
A competitor that is only curious is not a prospective buyer and could cause harm if they learn more about your business from a competitive standpoint. The same is true of a competitor who is not financially capable or otherwise unable to complete an acquisition. An experienced business broker is seasoned in these scenarios and knows how to reach out to a competitor with enough information to generate true interest without disclosing your business. When a Broker approaches a competitor with a blind solicitation, the competitor will not know it’s your business, whereas confidentiality is immediately lost if a seller approaches a competitor directly.
And if there is interest, the broker will ask every prospective buyer, including competitors, to sign an NDA and provide financial information to prequalify the individual or company before the name or location of the business is revealed. The NDA is an agreement that protects the seller by specifying what the prospective buyer can and can’t do with the information they will potentially receive. In most cases, the NDA separates the curious from the serious as most who initially claim they are interested drop out when they realize they are signing a binding agreement.
Be aware that the process for selling to a competitor will likely differ from selling to non-industry players. Customer names, employee names, vendor agreements and the like may need to be disguised or released later in the process. Once a broker begins to reveal information to a qualified competitor, the release of the information is limited. Key information is often protected until an offer is written and funds are in an active escrow.
When it comes to selling your business, it’s hard to know upfront who the Buyer will ultimately be. Whether an industry buyer, a Private Equity Group, or a cash flow buyer, it’s important to have a experienced broker control the information flow and help you find the best buyer. A broker will help to create a market for your business by letting all prospective buyers, including competitors, know they are not alone in the possible acquisition of the business. And if they genuinely are interested in purchasing your company, they will need to write their best offer.
In over 25 years, we’ve sold numerous businesses to buyers within the same industry. Each Buyer has to be vetted and directed to follow the process properly, because as everyone knows, loose lips do sink ships.