If you’ve made the decision to sell your business – perhaps to take advantage of a fresh opportunity or because you feel you’ve taken it as far as you can, or maybe just so you can retire and enjoy the fruits of your labour – one of the quickest ways to strike a deal is to sell the business to a competitor.
Like for like
It may seem like an odd idea but selling to a competing business may represent your best chance of maximising your profits and can be the easiest way of completing a sale. A competitor – whether direct or indirect – will already understand how your business operates and what challenges it’s facing. They will also potentially have the most to gain from acquiring your customer list and, possibly, your presence in a favourable location. For companies looking to expand into a new but synergous trading area – for instance a garden centre chain looking to add landscaping services – the opportunity to buy a ready-to-go operation is ideal.
A competitor may also be prepared to pay more for your business than an independent buyer, especially if you can show consistent profitability and a strong forecast. They could have the cash to purchase outright and – if their operation is already successful – they shouldn’t have any difficulty raising finance.
Protect your interests
That said, you will need to stay focused on what you want from the deal, so make sure you approach negotiations with a clear idea of your preferred outcome and be prepared to ask all the questions you need to find out whether your potential buyer is on the same page. You’ll want to understand what they’re hoping to gain from the acquisition, if they’re in a position to make you a favourable offer and what their timeframe for completion is. The situation you definitely want to avoid is that in which a competitor poses as a buyer in order to discover confidential information that will benefit their own business.
A non-disclosure agreement (NDA) will help to protect your interests and should be drawn up by a solicitor, although an unscrupulous competitor may still find ways of using sensitive information indirectly. So, make sure you’re already in advanced talks before revealing too much about your business and insist on an information exchange that commits both parties to a mutual sharing process.
Keep it professional
Even if you’re exiting your business because you’re ready to move on to the next phase of your career, it can still be an emotional time – even more so if your potential purchaser just happens to be one of your closest competitors. It’s important to view the deal as objectively as you can and to avoid letting petty issues sour the mood. Recruit a team of professionals – solicitor, accountant, financial adviser – so you’ve always got someone in your corner.
Don’t assume anything or rely on a verbal exchange – if you want the deal to be conditional on continued employment for your current staff, for instance, you’ll need to make sure it’s explicitly mentioned in the contract.
Perform due diligence
The formal process whereby each party thoroughly examines the other’s ability to deliver on their promises is an essential part of the process and shouldn’t be undertaken lightly. Your potential purchaser will want to see evidence that backs up your profitability claims so make sure all your paperwork is ready and waiting. In turn, you will want to conduct reverse due diligence on the purchaser to make sure they can meet their obligations should the sale go through. This will enable a deal to be structured that will suit both parties.
The buyer may request a handover period during which you stay on to ensure a smooth transition before your final exit.
It’s your business, so make sure you stay in control of the selling process. Try to set a positive tone in discussions and keep the momentum up during diligence, negotiations and any face-to-face meetings. Trust your instinct, too. If something doesn’t feel right, it’s OK to press the pause button. Above all, don’t lose sight of your own goals. Good luck!
Posted on February 15, 2019 | selling, sell a business, how to sell a business, sell a business fast