As an entrepreneur who scaled my business through acquisitions, I’ve learned firsthand that scaling through acquisition is a strategy that can accelerate growth significantly faster than organic expansion. 

While most business owners are wise enough to diligently monitor competitors, it’s crucial to remember that this vigilance should be amplified if competitors become suitors.

While competitors’ interests are typically genuinely regarding your business, they present inherent risks, such as potential misuse of confidential information, customer poaching, employee poaching or even attempts to eliminate competition by acquiring and shutting down your business, which if you care about your legacy may be a deal breaker.

Mitigating Your Risk:

• Professional Counsel: Engage only experienced M&A advisors and M&A attorneys to guide the process and protect your interests. Particularly when you are engaging with competitors, having a neutral, experienced third party acting on your behalf is critical to enforcing and maintaining adherence to the ‘rules of engagement’ and confidentiality. 
• Professional Valuation: Obtain a professional valuation to establish a clear and defendable selling price. I do two forms of valuation – a Broker’s Opinion of Value and a Certified Valuation for market value purposes. Costs of a valuation can range from roughly $2,500-7,000. Getting a valuation well in advance of going to market allows you to capitalize on insights to drive your enterprise value higher, so I highly recommend it to every business owner.
• Non-Disclosure Agreements (NDAs): Your advisor should insist on implementing comprehensive NDAs to protect sensitive information at every stage of the process.
• Thorough Due Diligence: Conduct rigorous due diligence on potential buyers, including financial analysis, credit history, and past acquisition performance. (I do an interview/ discovery call with potential buyers before engaging with them.)
• Non-Solicitation Agreements: Protect your key employees and customer relationships. (This may be covered by your executed NDA).
• Phased Information Release: Control the flow of sensitive information, releasing it gradually as the deal progresses.

Despite these risks, selling to a competitor has compelling advantages:

• Accelerated Transaction: Competitors possess deep industry knowledge, streamlining the due diligence and negotiation processes.
• Synergies: Synergies (economies of scale and scope) like shared resources, streamlined operations, and reduced overhead and operational costs increase the combined cash flow and thus significantly increase the acquisition’s value.
• Proven Financial Strength: Successful competitors often have the financial resources and business acumen to successfully integrate and grow your business.
• Simplified Transition: Reduced training requirements for the acquiring company can streamline the transition with minimal disruption to your business.

If you are thinking about selling to a competitor, make lists of what businesses you think would be complimentary to your business.