Think twice before contacting a competitor

October 1, 2015

By Scott Bushkie, CBI, M&AMI

Cornerstone Business Services, Inc.

We’re marketing a business, in the Rockies, in oil and gas field services and have several interested buyers from around the country.  In the first few weeks, more than 30 qualified firms signed non-disclosure agreements.  And not one of them is a competitor.

When people think about selling their business, some focus on selling to their local competition.  After all, you fight over the same customers.  Why wouldn’t a competitor pay top dollar to take you out of the market?

Unfortunately, competitors rarely offer a good price.  It’s a human nature, ego thing.  They can’t see that your “secret sauce” is anything better or smarter than their business practices, so they try to strip away a lot of the goodwill that other buyers might pay.

Plus, selling to a direct competitor can be very dangerous.  If you enter into discussions with a competitor and the deal doesn’t go through, they can do a lot of damage to your business.  They’ve all signed non-disclosure agreements (NDA), so legally they cannot steal your ideas, people, or customers, but they do learn a lot about who you are and how you operate.

Let’s call it like it is: some organizations just aren’t that ethical.  They’ll tell you what you want to hear. They’ll go as far in the negotiations process as they can to gain competitive intelligence, knowing they have very little intention of doing the deal (unless you’ll accept a lowball offer).

Even if they don’t maliciously go after your customers, they’ve learned a lot about you and can devise a plan to target your business a few years down the road, after the NDA expires. As for our oil and gas seller, I should have at least five indications of interest on my desk by the end of the week. With that many buyers at the negotiation table, we won’t even let his local competitors know the business is for sale.  If we contact them at all, they are often our last resort as a buyer group.

When it comes time for you to sell, think beyond your local competition.  Get creative.  Who else could benefit from the things you do? With access to the right databases and tools, we can identify many different targets (potential buyers) that could have strategic connections to your business.  They might value your customers or your product line, your geographic territory, management team, intellectual property, established sales channels, or proprietary processes. I can give you an example of a business that sold specifically for each one of those reasons.

At the end of the day, you never know who your buyer is going to be. But after 15 years in the M&A business what I do know is this: approaching a direct regional competitor is the riskiest option on the table.

Scott Bushkie is President of Cornerstone Business Services . To request a book (at no cost) with advice on the exit planning process contact Scott at (920) 436.9890 or Copyright 2013.

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