Call Us - (817)738-4220
Market Update: Selling to a Competitor
The press release announcing the sale of Harvest Supply Company to BWI describes a recent successful K&A transaction between two direct competitors. I wanted to highlight this transaction, because I believe it serves as an example for other business owners considering the sale of their companies.
In some cases the most likely buyer candidate for a company is one of its competitors. The obvious upside to such a transaction is that a company already in the industry could perceive strategic benefits to making an acquisition. They know the industry and they understand the business – there’s no learning curve and they’re probably not as concerned if the owner or key manager is not planning to stick around. Perhaps they’ll be willing to pay a premium to obtain new customers, increase market share and eliminate a competitor.
But before you open up to other companies in your industry, keep in mind that there are pitfalls to avoid. The primary concern is maintaining confidentiality of your intention to sell. Most business owners don’t want customers, employees, etc. to know their business is on the market. Making a competitor aware that the business is for sale could end up being used against you in the marketplace, especially knowing how salespeople like to spread rumors! Opening up your financial records to competitors can also disclose key information that could be used against you if the business is not sold. Confidentiality agreements are essential and attempt to prevent these sorts of damages, however, there’s little that can be done once the “cat is out of the bag” short of costly litigation.
If you decide to approach a competitor, the best way is through a professional intermediary well-versed in the delicate dance required to avoid the common dangers. A third party representative keeps your business at arms-length, and can disclose pertinent information in parcels depending on the seriousness and forthrightness of the potential buyer. Your M&A specialist will communicate with the key decision-maker on the buyer-side, making sure they understand the need to maintain confidentiality and preventing unauthorized contact.
As always, the M&A specialists at Kasper & Associates are happy to visit with you or your clients to discuss issues such as this as well as current market conditions. Contact us at 817/738-4220 or contact@kasperassociates.com.
