We've had an unsolicited approach from a larger competitor. They want to acquire us outright. On one hand, it's a clean exit and they know the market. On the other, I'm worried about sharing financials and customer lists before any deal is signed. Has anyone here actually gone through a sale to a direct competitor? How did you handle the early due diligence without giving away your playbook?
M&A
Has anyone sold their company to a direct competitor?
Sold a regional logistics firm to a national competitor in 2019. The biggest issue was customer overlap. They wanted a list of our top accounts before LOI. We gave them revenue by segment, not names, until they signed an exclusivity agreement. Even then, it leaked to two of our clients and we lost one.
Did you use an advisor or negotiate directly?
Direct at first, then brought in a small M&A lawyer once they sent a term sheet. In hindsight, should have had the lawyer from the start. The competitor's team was very polished and we were not.
Good to know. We're in a similar spot but haven't told anyone yet.
They will use the information against you if the the deal falls through. Assume everything you share ends up in their pricing model. That's not paranoia, just how it works. Keep the data aggregated as long as possible.
That's the part that keeps me up at night.
Not exactly the same, but we sold to a competitor who then shut down down our product line. The earn-out was tied to retention of key customers, and they made it impossible to hit. Read every clause about what happens to your brand and your people. The money is one thing, the integration is where it gets ugly
Bramblewood makes a good point. Our earn-out was based on gross margin and they changed the transfer pricing between divisions after closing. We never collected the second tranche. If I diid it again I'd push for a clean cash deal or a much shorter earn-out with clear, auditable metrics.
The earn-out risk is not something I had considered. They pitched a 70/30 structure with the 30 tied to revenue over two years. I'm going to push back on that. Also, the leak scenario is exactly what I was afraid of.
One more thing. Get a list of everyone on their side who will see your data. If it includes their sales director, assume your pricing will be known to them within a week. NDA doesn't stop watercooler talk.
If they approach you again, ask for their standard integration playbook for prior acquisitions. They won't give it, but their reaction tells you a lot about how they treat acquired companies.