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When considering the sale of one's business, choosing a competitor as the buyer may be the last option to come to one's mind. It might feel like selling out. Or perhaps it may be unclear what a competitor would have to gain from buying a similar business. However, sometimes one's competitor is actually the best person to buy the business.
Why Would They Want to Buy?
A competitor may look at the acquisition as a strategic way to obtain a greater share of the market. Since the buyer will already be well-versed in the specific industry, the synergy and economies of scale will be beneficial for both the buyer and seller. Perhaps they are interested in acquiring the competition in order to obtain better equipment or access other product lines. One may be surprised at the number of business owners that approach their competitors looking to buy. It is a fairy regular occurrence.
Competitors are known for paying a premium to acquire a rival's business, since oftentimes they are doing so out of necessity or to improve their ROI. If the business in question is not making enough sales because their competition holds a bigger share of the market, then buying that business may be the only way to beat out the competition.
How To Know If they Are Legitimate
However, if the buyer offers a lowball price, then they could be trying to simply gain customers or get rid of competition and are not looking for a serious strategic acquisition. A good buyer will have a plan for the future of the merged companies with legitimate goals in mind. Without such, this may indicate that they will not make a considerable offer.
Determine the buyer's plans for their future employees. There will almost always be an overlap in operations, so certain employees and even entire departments may need to be let go after the sale. This can be a discouraging thought for the business owner, and may be one reason to be hesitant to sell. Make sure to negotiate plans for current employees in the purchase agreement. The right type of buyer will have a strategy in mind for these redundant staff members. Be sure to understand the buyers' intentions before deciding whether or not to sell.
When considering selling to a competitor, it is imperative to draw up a confidentiality agreement before any real information is disclosed. Not only could news of the negotiations harm the businesses' reputations, but it is important not to give away any tricks of the trade. Make sure that the competitor is not just a tire-kicker, looking more for insider tips than a serious M&A deal. Have an attorney look over the agreement to ensure that the business is protected.
The best way to ensure that the business is sold for the right price is to have it professionally valuated. A business appraiser will be able to determine the most appropriate sale price. That way, the seller can determine whether or not the potential buyer is making a substantial offer. Even if one has no plans to sell, it is still important to find out their business worth in case someone does come along and make an offer.
If you are interested in finding out the value of your business, contact George & Company confidentially. We offer expert appraisals as well as M&A advisory so that you can get the best price for your business.