It’s possible that you never thought you would sell your company to a rival, but it happens frequently. If a rival company makes an approach to buy your company, it may come as a particular surprise.
Giving your company to a rival has some dangers, but it also has advantages that you might not get from selling to a typical purchaser.
You can take advantage of these advantages and make a potentially life-changing amount of money on the sale of your firm by learning how selling to a competitor operates.
Why a Competitor Would Want to Buy Your Business
There’s always someone watching you from behind. They are therefore familiar with your company.
They are aware of your company’s growth potential, therefore if your rival is owned by a private equity firm managing a portfolio of internet companies or is an active investor, they might find your company to be a desirable investment. Their goal in buying your business would be to increase its profitability and possibly sell it to make back what they invested.
Alternatively, a strategic buyer can be in charge of your rival.
A strategic buyer would likely bolt on your company to their own—this is known as the “bolt on” acquisition strategy—if you were to sell it to them. The buyer would use your company’s assets, resources, and audience to boost sales for their own company. Alternatively, they could choose to keep your company apart from theirs and just profit from it.
Private equity firms also use this tactic to expand their portfolios of companies.
The kind of competitor a buyer is also influences what they plan to do with your company.
The 3 Types of Competitors Who Buy Businesses
The majority of rivals are attempting to reach the same objective: increasing their market share. There are three categories of rivals for your company:
1. Near Competitor
Close rivals work in a specialized market inside the same sector as your company. Although your target markets are distinct, there will be some overlap. For instance, a company that sells pet supplies would be a close rival of yours if you own a pet food business.
A buyer who is a close competitor would like to purchase your company for its clientele in order to boost sales at their own establishment.
2. Indirect Competitor
With a different offering, indirect competitors provide the same solutions to the same market. An indirect rival could sell dumbbells, for instance, if your company sells resistance bands.
3. Direct Competitor
The same goods or services are offered to the same customer base by direct rivals. For instance, if your company is a blog about travel gear, a blog about travel gear would be your immediate rival.
In certain cases, it will be advantageous for all parties to the transaction to consent to the sale of a company to any kind of rival.
Pros of Selling A Business to A Competitor
Being receptive to selling your company to a rival could really help it realize its full potential because they are familiar with your market.
A rival can increase the business they’ve bought by bolting a firm onto theirs and using the resources and capital produced by that business. Rivals possess in-depth knowledge of your industry, enabling them to recognize potential avenues for business expansion inside it.
Transferring ownership of your company to a rival is also much simpler than selling to an investor or non-competitor who isn’t familiar with your line of work. Competitors that have experience running other companies in their industry don’t require much assistance to take over operations.
You’ll be able to close a deal quickly because rivals have experience with similar businesses, so there won’t be much learning curve for them to go through.
However, depending on a competitor’s reasons for acquiring a rival company, this strength could also pose a risk.
Cons of Selling A Business to A Competitor
The sale of your company to a rival has certain dangers.
They Could Steal Business Information
Rivals might be interested in purchasing a company in order to obtain private data regarding its clientele and revenue. They would utilize this business data to guide their company’s expansion plans. Another option is for a rival to just take your client lists and attempt to approach your audience directly with their own products.
They Could Headhunt Your Employees
If your company employs a crew, it’s possible that they are performing the same tasks as your rivals. For their company, this makes them ideal targets for headhunting.
They Could Close Your Business
The most effective way for a rival to increase their market share might be to buy out a rival company and shut it down to remove competition.
They Could Let Go Of Your Employees
Although it goes without saying that you care about your staff and would hate to see them fired, your competition may have other plans that require them to leave if they wish to close the firm or have their own team already.
Although there are hazards involved, you shouldn’t let them stop you from accepting a competitor’s offer to buy your company. It is possible to safeguard a company throughout the selling process to ensure that all parties gain from the transaction.
Being involved in the selling of your company to a rival can be an emotional experience, so you should make sure you can regulate your feelings at all times during the transaction.
This might be a fantastic chance for you, the company, the rival, and all the other parties. Prior to taking any action regarding the sale of the company, find out why the rival wants to buy your company and take the previously discussed points into account.
You can proceed with the sale process if you are satisfied that the rival has sound business reasons.
5 Stages of Selling Your Business to Your Competitor
Selling to a rival or any other kind of buyer follows the same basic steps in the process of selling a company. Following it to the letter will protect you against the special dangers associated with selling to a rival.
1. Prepare Your Business Assets
A rival will eventually require access to the company’s financial and analytical data, just like any other bidder.
It is advisable to get your information ready before beginning the selling procedure. Putting your financials into a neat profit and loss statement is a necessary step in preparing business information. To ensure that your finances are proper, you can have a certified public accountant with expertise in business models complete this for you.
Additionally, you want to get your analytics ready for inspection. If at all possible, install Clicky or Google Analytics a few months before proceeding with the sale process. This will enable you to gather a substantial quantity of business data to showcase to a potential buyer.
Additionally, the following other corporate assets need to be ready:
- Access credentials for every company account
- Lists of emails
- Contracts for inventory
- Contracts for employees
- Every domain together with its accounts
- Hosting a website (ensuring payments are paid)
- Bugs on websites (make sure they’re fixed)
- Source code (verify that the rights to your software are held by you)
The business will be prepared for a professional valuation once you’ve finished with it.
2. Get A Professional Valuation For Your Business
You can find out what you should obtain for your firm when you sell it by speaking with a business broker or other professional business valuer. Their assessment of the company’s worth will be predicated on their knowledge of market trends and business valuations.
3. Protect Yourself With An NDA When the Buyer Does Due Diligence
You should consult with an attorney as soon as you have your valuation.
They can assist you in drafting a non-disclosure agreement (NDA), which will guard against unauthorized use of the private information belonging to your company.
Your NDA’s wording is essential for safeguarding the confidential information about your company. Depending on the rules of each state, the material in an NDA may be construed differently, therefore make sure you have an attorney construct your NDA correctly.
Confidential company information must be made available to your rival while they are evaluating your business. To ensure the safety of all parties engaged in the sale, distribute this gradually as you move through the procedure.
Even if the company information would be protected by your NDA, it is still not advisable to provide all of the information at once. During the due diligence phase, they should only divulge the information that is necessary to them; the rest should be kept private and shared only when the competitor requests access.
4. Announce the Sale Of Your Business to Employees
It could be beneficial to inform your team of employees if they assist you in running the company about your intention to sell.
It is imperative that the rival company ascertains whether the team will stay on following the sale in order to facilitate plans like hiring a new staff.
Notifying your staff in advance allows them to plan ahead and decide what they want to accomplish. This is also polite. It will demonstrate your appreciation for their efforts and allow you to sell without causing ill feeling.
If you work with contractors or virtual assistants, things can be a little different because they might not require as much notice.
In any case, make sure you release the material at the appropriate moment. If you notify your staff members too soon, the deal may not go through, which could put you in a challenging scenario if you decide to keep running the company. The team may experience some confusion and additional issues if you inform them too late.
5. Final-Stage Selling Negotiations
You may proceed to the next round of talks if your rival has completed their due diligence on the company and is satisfied to complete the transaction.
You ought to now request the buyer’s consent to a break-up fee plan. In the event that the buyer decides not to proceed with the business acquisition, they will pay you a fee.
Two weeks is the handover period that we adopt when we support the sale of a business. We hold the seller’s money throughout this period and transfer the company to the buyer. The business is under the buyer’s hands for a period of two weeks. The buyer has the option to renegotiate the business’s price or back out of the deal entirely if the company’s profits fall below 50% of its previous performance. Should gains stand at 50% or above, the buyer is required to finish the transaction.
Such procedures necessitate strict control to guarantee that all parties are handled equally and within the bounds of the law.
When buyers and sellers handle these processes independently, it can lead to a lot of conflict and financial consequences. For this reason, it’s advisable to obtain professional counsel and guidance at the very least.
Get Professional Advice to Help You Sell
Valuing the company is the most crucial element in enabling a successful business transaction.
Obtaining an expert appraisal from a knowledgeable advisor can assist the seller and the buyer stay on the same page and avoid the need for future damage control.
Advisors for mergers and acquisitions (M&A) can also help you stay on course for a safe transaction and offer advice throughout the full sale process.
In order to safeguard the company and yourself, you need also consult an attorney. A CPA may help you with financial organization so that no details are lost in the process and cause difficulties during talks.
There is another approach that is simpler, safer, and more dependable to guarantee a smooth business transaction in addition to seeking assistance from numerous consultants.
Why You Should Sell Through a Broker
Lawyers and CPAs can assist you with the legal and financial aspects of selling a business, but they might not be the greatest consultants to help you sell your firm successfully if they lack experience with internet business M&A.
A business broker possesses expertise in enabling company sales and acquisitions. They are knowledgeable about how to appropriately evaluate firms, what legal frameworks must be put in place, and how the entire selling process functions.
For instance, without requiring them to sell to us, we provide free exit planning consultations to assist business owners in getting their company ready for sale even before they receive a value.
With divisions dedicated to each step of the business selling process, from initial business vetting and preparation to business relocation and fund collection, our brokerage employs more than 80 highly skilled individuals.
But not every broker is made in this way.
Commissions are given to most brokers. A commission is given to some people when buyers purchase businesses. Securing the greatest bargain for the buyer is in these brokers’ best interests because it encourages repeat business. Because of this, some of these brokers promote companies for sale by making irrationally large multiple promises to their owners, then allow purchasers to haggle them down to a price that is less than the real value of the company.
Like us, other brokers receive a portion of the business seller’s sale price. While other brokers of this type may likewise guarantee large multiples in exchange for listing businesses, we do not.
Enabling the greatest online business transactions is the foundation around which we have built our company. It denotes the finest agreement between the vendor and the customer.
Over 90% of the firms that apply to our marketplace are rejected because we only list those that fit our requirements. This is due in part to our desire to avoid listing subpar companies, but it also means that we won’t list a company if we don’t believe we might find a buyer for it. We’ve even been honest with sellers, telling them up front that given our buyer pool, we may not be able to sell their company.
One of our guiding principles is transparency, which is why we have made our quarterly financial reports publicly available.
The notion that paying a commission for a broker’s services gives rise to a perilous misconception known as the “off-market fallacy” inside the business.
Some entrepreneurs mistakenly think that selling their company privately will result in them making more money since brokers receive a commission on the sale of a company.
This makes logical in theory, but when you look at things in their wider context, it’s not always the case.
A business broker’s network of buyers is the greatest resource for selling your company. Currently, our buyer pool has verified liquidity of over $7BN that is available for investment in internet companies.
In what other way would you introduce your company to such a vast pool of capital-backed investors?
As a result, business brokers may typically assist you in obtaining the best selling price. You also receive the advantage of the broker’s services, which include business valuation and preparation, marketing and buyer assistance, handling the legal aspects of the sale, business migration, and money collection.
Obtaining a professional valuation is the first step in the process of selling through a business broker.
Get a Free Business Valuation
With our free valuation tool, you can quickly determine how much your company might fetch on the open market.
Simply provide a few details about the company, and algorithms that are driven by information gleaned from the sales of over 1,900 firms will determine a starting estimate for the value of the company.
In a matter of minutes, you can submit your company for review to our staff in order to begin the sale process.
If a competitor has already made you an offer to buy your company, and you would like us to assist you get the highest possible price for your business while ensuring the transaction is conducted safely, then list your company for sale with us and invite your competition to buy it through our marketplace.