Running a business requires an exceptional work ethic and a strong competitive spirit. For many owners, their competitors are enemies never to be spoken of, and certainly not to be spoken to. Even when owners have a good relationship with their competitors, there’s usually some tension beneath the surface. That’s why many owners are surprised to learn that one of the best potential buyers for a business is its biggest competitor. Competitors already know the industry, and they have a strong incentive to get rid of a competitor. They may benefit strategically from a merger or acquisition, driving deal value up.

Selling to a competitor is also inherently risky—especially when they’re just a window shopper seeking a competitive edge via sensitive data. Owners can reduce their exposure and increase the odds of a successful deal by following these steps.

Identifying an ideal buyer

It’s difficult for owners to walk away from any buyer with cash in hand. Therefore, owners must identify their ideal buyer before talking to purchasers. If a competitor doesn’t fit the bill, having a profile in mind makes it easier to tell them no.

Using a well-worded nondisclosure agreement

It’s not enough to merely go through the motions of signing a non-disclosure agreement. NDAs must clearly and specifically outline what cannot be disclosed, and by whom. NDAs are only as good as the lawyers writing them. Owners must consult with a skilled M&A lawyer to draft an airtight NDA with real teeth. The goal here should be to ensure that, should the buyer leak intellectual property or sensitive data, the owner is compensated for the loss associated with the leak.

Working with an M&A firm or investment bank

M&A deals with competitors should never be DIY deals. It puts the owner at a substantial disadvantage and increases the odds that the deal will fall through. The buyer will almost certainly have highly experienced representation. An M&A firm or investment bank lends professional credibility to the deal, oversees negotiations, prevents owner distraction, and can ultimately increase the value of the deal.

Releasing information slowly

Owners should adopt a layered approach to releasing information, steadily providing more details about the company as buyers grow more committed to the deal. An Investment Bank or M&A firm can help with determining which information to release at which point in the deal.

Partnering with a wealth manager

Many owners enter the M&A process with only a vague understanding that they need substantial funds to retire. But how much? And to what end? A wealth manager can help owners assess how much they really need for retirement and develop a plan for getting there. This may help ease owner anxieties at the negotiating table and prevent the deal from going south at the last moment.

Preparing to relinquish control

One of the biggest challenges of selling to a competitor is that owners will have to see someone they’ve long seen as an adversary at the helm of their company. They must be emotionally prepared to fully relinquish control. Before beginning negotiations, owners should consider their priorities—protecting staff or brand image, for example—then see which priorities they can codify into the sales agreement.

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