What to Consider When Selling Your Company Through A Trade Sale
It’s a scenario that occurs frequently in the business world: receiving an approach from a larger competitor regarding a potential merger or acquisition. As the conversation progresses, it’s crucial to consider the advantages and disadvantages of pursuing a trade sale as your exit strategy.
Here are some key points to keep in mind:
Pros:
🔵 SPEED. Engaging in a trade sale with a competitor offers the advantage of expedited processes. Since they are already familiar with the industry and have the right questions to ask, they can navigate the transaction swiftly. This can save valuable time and resources.
🔵 KNOWLEDGE. Competitors inherently understand the value of your business and can identify the synergies that a merger or acquisition may bring. This shared understanding can streamline negotiations and potentially result in a higher selling price for your business.
🔵 OPPORTUNITY. Many trade sale deals with competitors pave the way for future partnership opportunities, consultancy roles, or even board positions within the acquiring company. These connections can provide new avenues for growth and professional development.
Cons:
🔴 FISHING EXPEDITION. It’s important to exercise caution regarding intellectual property risks during the due diligence process. As you open your books and disclose trade secrets, there’s a possibility that certain competitors may exploit the sale process to gather sensitive information. Even if their intentions are initially honourable, this could backfire if the deal falls through or if they use the gathered intel against you later.
🔴 TIE-INS. When selling to a competitor, you may receive payment partly or entirely in the buyer’s stock. This can result in a situation where your financial future becomes intertwined with the same industry you just exited. Consider the risks to your payout if the competitor’s business underperforms after the acquisition, as it could impact the value of the stock and, subsequently, your returns.
🔴 JOB RISKS. Mergers often involve restructuring and synergies, which can lead to job losses. If preserving the livelihoods of your team is a priority for you, it’s essential to carefully assess the potential impact on employees. Consider whether there are guarantees or provisions in place to protect their positions during and after the merger.
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