Can I sell my business to a competitor?
A key consideration for all business owners should be their exit strategy.
The reality is for most operators this will be the time where they make serious money and when they are rewarded for the years of hard work and commitment that they have invested into the business.
The sale price of a business will often determine how comfortably sellers will retire and quite topical now is - what age they will retire. Changing retirement ages will see people working much longer than before prior to being able to access the pension.
One of the exit strategies not often considered is to sell to a competitor or a similar business that can take advantage of your income without inheriting all of your expenses. This could be a win win for all concerned and will often yield a higher sale price for the seller.
Up until recent years most business owners would never have contemplated selling their business to a competitor. There are several reasons why and generally it was due to the competitive rivalry they have developed or the obvious one “I don’t want them to see my figures”.
Well, things certainly have changed and now we often see competitors as being the obvious choice to purchase industry related businesses. When you analyse this scenario it makes good sense - they take out a competitor, expand their customer base, increase buying power and the product range and they get the massive bonus of industry trained staff, which is crucial in the wake of pandemic. Finding those loyal & trained staff continue to become a major challenge in today's current job market.
Perhaps the biggest attraction though is the additional revenue which is gained without increasing fixed expenses such as rent & electricity, administration costs, logistics, sales staff, advertising & insurance etc. The scales of efficiency prove this can dramatically increase profits and market share.
As an example we currently have a business returning profits of approx $500,000 p.a to the existing owner. We are direct marketing this to their competitors as a bolt on business, which would offer them returns of $750,000 as they have an existing platform in place. This method will achieve the seller a much higher price than the general market would pay.
Of course this approach needs to be done carefully as there’s always a risk that the buyer may not proceed to settlement, therefore exposing your clientele, staff details, suppliers, lease details and any weaknesses in your business.
Considering this, it is strongly recommended you engage a specialist business broker with the experience and knowhow to deal with these delicate situations.
At the end of the day your feared competitor may turn out to be your new best friend!