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News & Events
Business Sale to a Competitor – Why they Always Pay Less
ENLIGN DEAL TEAM | 04/29/2018
Selling your business to a competitor a.k.a. strategic buyer will always yield the lowest transaction value.
By: Michael Fekkes, M&AMI, CBI, CEPA
The unfortunate truth… A competitor never pays more for your business.
Although there are legitimate reasons for a competitor to have significant interest in your business and recognize inherent value, history has taught us that competitor acquisitions of small businesses yield the lowest transaction value based upon price, structure and terms.
While you have built a turn key business that has considerable value, a competitor has most of these organizational/operational elements in place and will view the overall value differently.
Many competitors approach these acquisitions as the purchase of a customer list, picking up a few good employees, add an asset or two, and maybe establish a key relationship or territory with a vendor. Some are simply looking to eliminate a competitor. The bottom line is that they do not need everything you are selling like someone new to the industry. The worth of this turn key operation is not valued the same from a competitor versus an outsider.
Does a competitor need, want, or place significant value on the following assets?
Tangible:
- Furniture, Fixtures, and Equipment (FF&E)
- Vehicles
- Inventory
- Real Estate
- Customer lists
- Client Contracts
- Systems, processes, and intellectual property
- Brand name, website domain, phone numbers
- Reputation
- Online Reviews
- Vendor supply agreements, licensing agreements, exclusive territories
- Proprietary computer software
- Trained and in-place work force
- Goodwill
- Obtain the highest price with a portion of seller financing contingent payments
- Obtain the highest price with a portion of contingent payments
- Maximize cash at closing
- Seek an exit with no continued involvement with the business
- Remain with the business in some capacity with less responsibility and time commitment
- Has adequate funds to close
- Has industry or related experience
- Is local or willing to relocate to be local to the business
- Acquires or leases the real estate as part of the business sale
- Does not cherry pick inventory, vehicles, or FF&E
- Has necessary business licenses or requires only minimal training and transition assistance
- Expects to retain the current roster of employees