How to get acquired by a competitor 💰

An acquisition by a competitor is a high risk, high reward scenario.

It could mean spilling your company’s secret sauce to your direct adversary before they even make a decision whether or not to buy you out.

Why would a competitor buy your business?

Market share

If your competitor wants to capture a bigger piece of the pie but growing organically takes too much time or resources, buying a competitor is a quick path to get there.

Synergies

Cost synergies: Both of you pay for the same things (e.g. accounting, SEO tools) - these fixed cost factors can be cut from 2 to 1, saving money.

Revenue synergies: You can market and upsell to each others audiences.

Why does it make sense to get bought out by a competitor?

They pay higher prices. 💸

Most acquirers think “How cheaply can I buy this business to maximize ROI?”.

Competitors think “How will this help my company take over the market?”.

How to prepare your business for an acquisition

1. See that all of your metrics are where they should be

2. Create a P&L

3. Have a valuation in mind

First contact

Either party can make the first step.

Competitor approaches you first: good leverage, but is the offer real?

You approach them first: less leverage, but you are less likely to deal with a bad actor

Giving out the secret sauce to a direct competitor

During the due diligence process, your direct competitor will learn your business’ every secret. 🫣

If the deal falls through, you just gave away your secret sauce for nothing.

Assess your competitor

1. Have they bought a competitor before? Good sign.

2. Do they have someone in charge of corporate development, i.e. M&A? Good sign.

3. Does an operations person (not CEO, not Corp Dev person) lead the acquisition? 🚩🚩🚩

Protect yourself

There are a few things you can do to ensure you are not being taken for a ride.

Get the final deal get figured out before revealing any secrets

Otherwise, the deal might fall through because you cannot agree on the details, but you have already given away your secrets.

Getting alignment on a contact draft ahead of the due diligence also shows that your competitor is serious about the transaction.

Ask for a breakup fee

This means that if your competitor backs out of the deal after you shared information, they owe you a pretty penny.

This, again, makes sure the acquirer is serious about the purchase.

Set a deadline

Tell your competitor the due diligence period has a window of 60 days, no more.

Make your competitor compete

Get more offers on the table from outsiders to start a bidding war. It will give you more negotiating leverage and make the overall likelihood of a successful acquisition much higher.

To get offers from micro private equity funds, family offices, acquisition entrepreneurs and many more, check out our acquisition marketplace BitsForDigits. It’s completely free for business owners.

Read more here: How to get acquired by a competitor