Should You Include Competitors on Your M&A Target List?
The competitor issue is a tricky one in creating M&A target lists. Companies are wary of divulging proprietary information to competitors for fear that a competitor will use the information against them in the competition for customers. And they’re right for having a healthy amount of hesitation.
That disclaimer aside, contacting competitors usually doesn’t create a problem for Buyers. Think about it. Letting your competitors know that you’re so successful that you’re poised to make acquisitions isn’t likely to create any fallout.
For Sellers, on the other hand, letting the “we’re selling” cat out of the bag can be disastrous, even if proprietary information doesn’t change hands. Having a competitor find out your company is for sale (or even possibly for sale) can wreak havoc on your operations because that competitor may be able to scare customers away.
If you’re selling, make sure you have a strong confidentiality agreement in place before proceeding with any discussion about selling your company.
If an executive contacts a competitor with a message of “we’re for sale, but we need you to sign a confidentiality agreement first,” the damage is done. The competitor is under no obligation to sign anything and therefore isn’t under any obligation to refrain from disclosing that the company is for sale.
Although a confidentiality agreement is a key step before divulging proprietary information, the cat is out of the bag.
Hiring an intermediary is an absolute must if you’re going to contact competitors with the message that your company is for sale. Because a nonemployee of the company (the intermediary) is making the contact, the competitor doesn’t know the identity of the company until the confidentiality agreement is in place.