Selling your Business to a Rival

When you are ready to sell your business, looking to rivals as potential buyers may be difficult to stomach, but is often highly rewarding from a business sale point of view. A fifth of all business sale deals are still made between rivals, according to PricewaterhouseCoopers, and when you come to sell your business, your competitors will be among the first to knock at your door with slide rule in hand.

However, this doesn’t mean that you should enter into acquisition discussions with a rival lightly. A cautious approach is advised as there are risks involved with sharing valuable information about your business with competitors. If the deal falls through after you’ve disclosed your margins, pricing strategies and supplier and customer information, the results could be catastrophic.

There are, however, ways you can protect your business and still consider a rival as a buyer when selling up. Below we will look at a few of the measures you should take to ensure your business is protected throughout the sales process.

Don’t reveal too much

There is really no need to be revealing all your trade secrets to potential buyers who are rivals. At the initial stages of a deal it’s a good idea to keep the details of how your business works to yourself. By all means give rivals a cursory view of the ins and out, but wait until the selling process is much further along until your start to show them the inner workings of your company. In many cases it is the cash flow figures and overall financials that will be of prime interest, and revealing these will usually not present too much risk.

Make sure you get interested parties to sign a non-disclosure agreement at the initial stages of the process. This should include any additional clauses that are vital to protect your business, such as rules against poaching staff, customers and suppliers, as these might not be included in basic NDAs.

However, even with an NDA in place, it’s almost impossible to stop rivals from using what they have learnt from your business if they do not go on to buy it. Keep this in mind and drip feed information on a need to know basis only. Leave it to the very final stages of the deal to reveal the most sensitive information - and we’re talking the last few days if possible.

Make use of virtual data rooms

These days, many business sales make use of Virtual Data Rooms to help sellers to share their business information with a number of interested parties, while maintaining control over the level of disclosure - depending on the business risks involved with each prospect.

Cite the law

Luckily, EU and UK competition law can give you a great reason, as a seller, to withhold information from rival buyers. The law states that rivals should not share competitively sensitive information, such as pricing strategies, commercial policy, market share, planned marketing campaigns, terms and conditions and discounting strategies. The law is there to protect consumers but can also help to protect your business when you enter into deal discussion with rivals who could be willing to use this information to their advantage.

But... don’t let bitter rivalries get in the way of a great deal

It’s not easy to contemplate selling your precious business, which you’ve worked so hard to build up, to a rival you’re used to competing with. It’s easy to be put off by the risks involved and the disaster stories that get picked up the media. However, it would be a mistake to let your emotional response to selling to your rival hinder a successful deal. It’s inevitable that rivals will be interested in your business when you move on. Be open to this and you might find it pays off.

Case Study:

As part of its ongoing expansion plans, Lookers, the UK’s largest car dealership group, has recently confirmed that it has purchased smaller dealership operator Jennings Motor Group, which operates several sites in the North East of England.

Andy Bruce of Lookers said that it intends to help the Jennings sites to expand and welcomes all the staff employed by Jennings in the region. He added: “There is a strong cultural alignment between the two companies. Both place the customer at the heart of the business, offer excellence in customer service and attract and retain the best people in the industry.”

Selling to a much larger rival couldn't’t have been the easiest decision for chairman and owner of Jennings, Dr Nas Khan OBE. He is proud of the hundred-year history of the Jennings brand and celebrates the fact that it was one of the first businesses to stock Ford cars in the UK.

Jennings had recently reported strong results but also said that the market has become a little more strained in recent months. Dr Khan also announced that Jennings would be abandoning plans to open a new dealership in Stockton due to market conditions. He explained: “We have decided not to go ahead with the Stockton development as a Ford store. As in my report last year, due to the uncertainty caused by Brexit, diesel cars, the slow-down of the new market etc. We did not feel that spending close to GBP6m was the right thing to do.”

Instead, the firm has sold to Lookers in a deal that “makes perfect sense” according to David Kendrick, Partner at UHY Hacker Young Manchester LLP, who advised Jennings.

Cases like this illustrate what there is to be gained by considering rivals when looking to sell your business. But do conduct your own due diligence on the potential buyer beforehand. If you have any doubt about whether the competitor has honourable intentions, raise their hurdle or simply refuse to deal with them.

Providing you approach with caution and keep your cards very close to your chest, you might be able to strike a deal with a long-running competitor that will see you come out on top.

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