SALE TO COMPETITOR – Business Destinations: The Most Overlooked Aspect of Business Planning

One option for a business destination is the sale to a competitor.  If you are going to sell to a competitor you want to establish that you have appropriate accountings and corporate documents.  You want to make sure that you have a structure that would appeal to them, whether an LLC, an S-Corp, a C-Corp, or a more specific entity.  

If you are going to sell to a competitor, the process is often easier because they know the nature of the business you do, and they’re going to know the space.  You would likely want to begin with a non-disclosure agreement.  You must be abundantly cautious about giving operational information, income statements and client lists to your competitor.  

Afterwards, you can develop a letter of intent.  The letter of intent is the result of initial discussions.  The letter designates the general parameters of what each side will agree to for general terms of the business sale.  Determine whether that is an asset sale or a full stock sale; if there is a certain price range or perhaps a specific price.  You want to set forth and narrow the general parameters so everybody is on the same page as to what that sale would entail.  You also want to do so without incurring all the fees and costs associated with generating all of the business documents that are involved in a sale.  Those costs are fairly significant, so a letter of intent lets everybody know the general design.  

Once a letter of intent is signed, stage two begins.  This would entail the drafting of sales documents and closing documents.  Then once the purchase documents are signed, you typically enter the due diligence period. Information is exchanged, financing is determined, and a determination is made of all the details that would need to be addressed.

Once the deal is ready to be finalized, you prepare the closing documents.  On the closing date, everyone appears, the money is exchanged, and final documents signed.

If selling to a competitor is the ultimate destination, try to stay on good terms with your competitors.

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