Demystifying M&A

Your Competitor wants to buy your Business. Now what?

17th July 2019

Imagine receiving a call out of the blue from a major competitor: they want to buy your business. Apart from shock, your first reaction will likely be suspicion. Are they genuinely interested? What are their motivations? And what do I risk by engaging in a deal process?

You are right to be cautious: your competitor may be looking merely for information, but even if there is a good potential fit, achieving an optimal price under these circumstances is likely to require a more tactical approach and more stringent process management than your average transaction.

There are a few precautions you can take to protect your business’s interests when beginning a sale process with a competitor. And, if the process is handled right, you may well find you come out of the transaction with both a good valuation and a strong business partner.

  1. Protect your sensitive information

 You wouldn’t freely give away commercially sensitive information to your competitors in any other situation, so engage with a M&A advisor before you respond to decide your approach. An expert who is experienced in handling inbound approaches can guide you through each stage of the process.

Set up a non-disclosure agreement and only disclose what you are comfortable disclosing. In particular, you should be looking for a two-way conversation – why are they interested and where do they see the value? If they are not willing to talk, then this might be a red flag that perhaps they are just fishing rather than serious about a deal.

  1. Determine if the offer is genuine

A competitor’s activity will likely have a lot of crossover with your own – until their motivations are clear, it is not worth the risk of sharing any business-critical information.

We use many different methods to determine the true basis of an inbound approach, but one key rule is to find out where the interest originates from and test who is involved in the discussions. If stakeholders from both the Business unit and the Corporate Development team are actively involved, this could be the basis of an authentic transaction. Interest from Corporate Development alone could simply be market research, while the Business unit cannot execute a transaction without Corporate Development, so they could get all fired up, but may not have the authority to do a deal.

  1. Explore potential strategic alignment

You may already know your competitor well – perhaps you have pitched against each other, or you could share many of the same customers. But a successful post-transaction relationship will need to go much further than this.

To see if your businesses can align strategically, find out as much as you can about how their business operates, whether the company culture is a good fit with your own, if there is a fit in terms of customers and go-to-market, and whether your products are complimentary or overlapping. These are the essential ingredients of a successful future for your business once the transaction is complete.

  1. Gain leverage for the best results

With an inbound approach, there is the temptation to push ahead with the process without considering any alternatives. This might seem like the quickest route to an exit but, in reality, you’re left with very little leverage. We always advise our clients to set up an auction process, even if they believe they have found their buyer.

While it is important you never reveal who you are talking to (or even how many people you are talking to) to potential buyers, they must believe they are up against major competitors if you are to have any leverage in the negotiations. The simplest way to achieve this is for it to be true. If a Silicon Valley buyer approaches one of our clients, we call on our extensive network of global technology buyers to bring other parties into the process wherever there is a good fit. Their interest in the deal raises the stakes and levels the playing field during negotiations.

  1. Stay focused

When it comes to your own business, it can be tough to approach the deal calmly and without emotion. But keep your eye on the objective – there is a reason you decided to sell to this buyer over the other opportunities on the table.

An experienced M&A advisor will help you to portray the right messages to get the deal over the line at the best price within the right timeframe, leaving you time to focus on your business and its future.

What our clients have to say

Chris Harvey, Former CEO at Salmon, engaged with FirstCapital when he sold the leading European ecommerce digital agency to WPP.

“FirstCapital’s ability to connect with the right buyers is excellent. We were after media buyers and we got interest from the five biggest buyers in the world. We also got a lot of interest from a number of private equity and IT buyers. The coverage couldn’t have been better.

 FirstCapital stand out to us as a trusted adviser and get the best deal for both parties. They take the time to understand the business they’re selling and the target market they’re selling into. They were very efficient in running the process that resulted in a sale.”


If you’ve had an inbound approach and would like some advice on your next steps, get in touch with one of our M&A advisors today.