Growing by acquiring a competitor is a common tactic for companies looking to quickly grab market share through a consolidation. However, exploring an acquisition opportunity with a rival can be awkward as neither party wants to give the other a competitive advantage by sharing company secrets. Typically, a rival, especially in a not-for-sale situation will be hesitant to share information. If you are making inquiries directly to your competitor, it’s nearly impossible to keep your acquisition strategy out of the industry news, especially if the deal happens to fall apart.
One of the ways to avoid these issues is to use a third-party advisor. An advisor can help keep your strategy under the radar by conducting research on your behalf without disclosing your firm. You will gain a deeper understanding of the competitor you wish to acquire while maintaining anonymity in the industry. If, after finding more information on the competitor, you realize you do not wish to pursue an acquisition, you avoid the risk of starting rumors in the marketplace.
Should you wish to pursue the deal further, this upfront research can also give you critical information on the owner’s “hot buttons,” or motivators for executing a deal. Armed with this information, you will be able to construct a persuasive offer that includes both financial and nonfinancial aspects that will increase your chances for success. An advisor can also help smooth over any tensions during negotiations and due diligence because the other party may feel more comfortable sharing information with a professional.
As with any other acquisition, in acquiring a competitor, before you begin exploring an acquisition, make sure you have dedicated time upfront to develop your one reason for an acquisition and your acquisition criteria, so you can remain strategic and objective in your decision making during the M&A process.