Selling Your Business to a Competitor: Pros and Cons

Posted on Mon, Jul 13, 2020

Selling Your Business to a Competitor: Pros and Cons

Selling your business to a competitor may seem like a quick and profitable way to exit, but it is fraught with risk. Before entertaining offers from others in your industry or a related business, think through the pros and cons of selling your business to a competitor

Competitors who show an interest in purchasing your business may include those who serve the same market and customers as your business (direct competitors), those who address a little bit of your market (indirect competitors), or those who serve a different sector of the same market as your business (near competitors). Their motivations may include quick expansion to more locations in your area, entry into a sector of the market they have not previously serviced, or the less admirable or even nefarious motivation to steal your customers and your trade secrets.

Selling to a competitor: Pros

Competitors can be attractive prospective buyers because they know and understand your business. They are likely well-capitalized, with strong banking relationships and ready cash. Competitors have much to gain from buying your business, including adding customers and the opportunity to expand their market share in your area. Selling to a competitor may offer a quick exit - without the need for you to stick around very long after the sale to show the new owner the ropes.

Selling to a Competitor: Cons

Although business owners in the same or related businesses often maintain cordial relationships, perhaps serving together in chambers of commerce or charitable organizations, competitors are still competitors. During the due diligence process, a prospective buyer gains a great deal of information about the business for sale. If the deal falls through for any reason, your competitor could walk away with customer info, trade secrets, and highly sensitive financial information. An unscrupulous competitor might try to use this information to his advantage. For business owners who have invested a lifetime in building their business, seeing it negatively impacted by such underhanded methods could emotionally devastating.

Employing an experienced business broker can help protect business owners from the “cons” of selling to a competitor by locking down strict Non-Disclosure Agreements and weeding out prospective buyers who aren’t serious but just want to spy. If you are looking for a business broker in Pennsylvania or the Mid-Atlantic States, contact Prime Investments for professional advice and assistance in sorting out the pros and cons of selling your business to a competitor.