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How Do You Handle an Acquisition Offer from a Competitor?

If you can’t beat them, join them. This saying holds true for high school cliques as much as for big businesses in Utah. It’s the same philosophy behind the acquisition offer you received from your competitor, as well.

Before you balk at the proposal and send it to the shredder, it pays to know your competitor’s intentions for gobbling up your company. If you look at the big picture, acquiring your business is a smart move for your rivals. They eliminate competition, obtain a bigger share of the market, and increase their pricing authority.

What’s in it for you? Your competitor may eliminate many of your fixed costs, such as office expenses. This means your business might just be worth more in other hands.

Ready to Spill the Secrets?

The challenge of handling such a negotiation is that, if the deal falls through, you’ll regret sharing your business secrets with a competitor. This puts your company in a precarious position.

On the other hand, completing an acquisition with the wrong company can jeopardize your workers’ well-being and careers. Unfamiliar policies and clashing company cultures take a toll on productivity and morale. They might even cost them their jobs.

As a diligent business owner, you have to exercise caution when negotiating an acquisition.

Investigate Your Competitor’s Acquisition History

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Knowing your competitor’s intentions is a crucial consideration to the offer. So, the first step is to review their acquisition history. If their track record shows many acquisitions, then there’s a good chance that their proposal is part of sound businesses strategy.

If you’re their first foray into the world of mergers and acquisitions, proceed with caution. The offer may just be an underhanded tactic to fish for your business’ guarded information.

Check if They Have an M&A Team

A company who’s serious about acquiring other businesses would have a merger and acquisition (M&A) team responsible for all the legal and financial liabilities that the transaction would entail. It could include a banker, a business lawyer in Utah, an accountant, an analyst, and more. At the very least, your competitor should have one full-time employee whose job is to buy businesses for the boss.

The absence of that position or the company’s unwillingness to share information about it is a red flag. The offer might only be a veiled attempt to lay their hands on your business secrets like what was mentioned in the previous scenario.

Negotiate a Break-Up Fee

A break-up fee is an amount that buyers — in this case, your competitor — pays the seller, in case the buyers don’t follow through on their offer. Usually, break-up fees are reserved for mergers. But if you receive an acquisition offer, you can reasonably argue that your business gets the short end of the stick if they don’t follow through.

A handsome fee discourages your competitor from pretending to pursue your company in the hopes of obtaining sensitive business data.

Additionally, if the competitor is truly interested in acquiring your business, they should be able to shorten their diligence window. A genuine acquisition offer means they have been tracking you closely as a competitor. Ask them to handle diligence within 60 days.

If everything points to the fact that they are truly interested in your business, then congratulations. The path to a win-win situation unfolds before you. But if you see red flags here and there, politely decline. Now’s a good time to send the proposal to the shredder.

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