It happens a lot. You get an approach from a larger competitor about a potential merger or acquisition…
And for a while, the conversation goes pretty well. But what are the pros and cons of lining up a possible trade sale of your business?
PROS
🔵 SPEED. A competitor already knows the game, understands the right questions to ask and will have a plan upfront for what to do post-transaction. All of which means they can move more quickly.
🔵 KNOWLEDGE. Competitors will understand your value and recognise the synergies that a merger or acquisition could offer. Meaning a more streamlined negotiation process and possibly a higher selling price.
🔵 OPPORTUNITY. Many deals with competitors lead to future partnership opportunities, consultancy roles or board roles in the acquiring company.
CONS
🔴 FISHING EXPEDITION. Beware the obvious intellectual property risks. At some point during due diligence, you’ll need to open your books and share some trade secrets. Some competitors will exploit the sale process to gather intel. Even if the intentions are honourable, it could still backfire if the deal falls through.
🔴 TIE-INS. Selling to a competitor can mean you’re paid partly or entirely in the buyer’s stock. Sometimes you are tied in for a period of time, linking your financial future to the same industry you just exited. What are the risks to your payout if the competitor’s business doesn’t perform well after the acquisition?
🔴 JOB RISKS. Mergers can sometimes lead to job losses. If preserving the livelihoods of your team is important to you, this can be a considerable downside.