Business owners are always understandably nervous about approaching a competitor during a company sale process. There is always the fear that any information provided will be used to steal customers, or that rumours will start that the company is for sale unsettling staff and customers.
We recently completed the sale of a private company to its biggest competitor. We tiptoed around the competitor for the first few weeks of the sale process. Then late on a Friday afternoon the inevitable happened. An adviser to the competitor saw our advertisement on a corporate finance bulletin board and brought it to his client's attention. The Managing Director of the competitor called me the following day, certain he knew which company was for sale, and asking to be part of the process.
By this time we had a couple of offers on the table but not at the full price our client was looking for. Potential buyers were still coming to initial meetings and we might be able to squeeze more out of the existing offers through negotiation or setting up an auction. We had options, but whichever way we looked at it there was no doubt that the competitor would get the most benefit from acquiring the company, and could best afford to pay the price we were looking for.
It's not difficult to understand why the competitor could afford to pay more. Duplicate administration costs could be squeezed out and eventually the combined company could be consolidated into one set of premises. There was some overlap in the customer base, which would need to be handled carefully, but many new customers for the competitor's broader product range. These were real profit improvement possibilities for the competitor, but also an important defensive element. Between them the two companies dominated the local market. The competitor feared a strong new opponent buying into the region.
Reluctantly the client gave permission to involve the competitor and within a fortnight we were in face to face negotiations. The two sides quickly built up a good relationship. They had a lot of contacts and experiences in common. To my client's surprise the competitor already knew most of his customers but feared they would not be able to secure them without his help handing over the relationships he had built up over many years; so keen in fact that they offered a generous consulting contract on top of the offer price.
There are broader lessons to be drawn out of this specific situation? First of all direct competitors will probably have the most potential synergies with your company, and be in the position to pay the best price. If you leave them out of the process you risk leaving money on the table. Secondly, the seller's fear that competitors will use any information they disclose to attack customers is often exaggerated. In reality a competitor will already have a good idea about your customer base and probably be talking to most of them already. Don't underestimate the other side's fear that they will lose some of the business they have bought after the sale. This can often work to your advantage.
Robert John Kemp is Managing Director of UK Business Broker Select Business Sales. Select specialise in retirement sales of private companies.
Visit our website to find out more: http://www.sellingprivatecompanies.co.uk
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