The Friendly Buyer Fallacy: Why Selling to a Competitor Requires a Buffer?
Selling to a competitor feels like the sensible option. You know them. They know your market. The conversation starts over coffee and feels refreshingly straightforward compared to the idea of running a formal process.
In thirty years of advising on business sales, I have seen this scenario end badly more often than almost any other. The "friendly" direct approach destroys your negotiating position, turns due diligence into a reconnaissance exercise, and leaves you conceding ground you never needed to give away.
The Moment You Lose Your Leverage
The moment you sit down with a competitor and indicate that you want to sell, you surrender your most important negotiating asset: the credible threat of alternatives.
If a competitor understands they are the only party at the table, they have no reason to offer a full valuation. They will put forward a conservative figure, knowing that if you decline, you face the prospect of starting the entire process again from scratch. That prospect, particularly for a founder who has already mentally begun to step back, is a powerful disincentive to walking away.
A structured, competitive process works differently. When an advisor manages the approach to multiple potential acquirers simultaneously, each buyer is forced to assume they are competing against others. That assumption, even if it is never confirmed, changes the psychology of the negotiation entirely. Buyers who believe they might lose a strategic asset will pay more for it than buyers who know they are the only option.
The Due Diligence Problem
A competitor is not merely a buyer. They are a rival who operates in the same market, competes for the same clients, and in many cases employs people who used to work for you.
When you open your books to a competitor in a direct negotiation, you are handing over your client list, your margin structure, your key staff remuneration, and your operational processes. All of this information is valuable to them regardless of whether the deal closes.
“In a direct negotiation, a competitor has every incentive to extend the due diligence process and gather intelligence.”
They will request increasingly detailed data. They will raise queries that require further disclosure. If the deal then falls apart, and without an advisor maintaining momentum and discipline these processes often do, the competitor walks away with a detailed picture of your business. They know which clients to approach, which staff to recruit, and where your margins are weakest.
An independent M&A advisor acts as a gatekeeper throughout this process. We structure the release of information in stages, tied directly to the buyer's level of commitment. Sensitive commercial data is only made available once the buyer has demonstrated genuine intent and is legally and financially committed to proceeding.
The Person Across the Table Changes
There is another dynamic that founders consistently underestimate.
The CEO you had coffee with is not the person who will conduct the transaction. Once the Heads of Terms are signed, that individual steps back. Their corporate finance team, their solicitors, and their Private Equity backers take over. Their mandate is to identify risk and reduce the consideration accordingly.
They will scrutinise your contracts for weaknesses. They will challenge your earnings adjustments. They will seek aggressive warranty and indemnity provisions. And because you have built a personal relationship with the CEO, you will feel uncomfortable pushing back. You will concede on points you should not concede on, in order to preserve a relationship that the other side of the table does not feel the same way about.
You need someone in the room whose sole obligation is to protect your commercial interests. Someone who has no need to be liked by the buyer, and no hesitation in rejecting unreasonable demands.
What Independent Representation Actually Does
A boutique M&A advisor does not simply find buyers. We manage the entire psychology of the transaction. We allow you to remain focused on running the business while we absorb the friction of the negotiation. We maintain the competitive tension that keeps the buyer honest. And we ensure that the terms you agreed at Heads of Terms are the terms you actually receive at completion.
I am a fully qualified business valuer, certified through the Institute of Management Accountants and Advisors, the ACCA, and the International Institute of Business Valuers. I am a Fellow of the Institute of Consultants and a Value Builder Certified Advisor with over ten years using the system. Every client engagement at ETSC is led by me personally, from the initial valuation through to final completion.
If you are considering approaching a competitor directly, or if a competitor has already approached you, the most important thing you can do before responding is to take independent advice. The conversation you have next will either protect your position or compromise it. There is very little middle ground.
If you would like a confidential conversation about your options, you can book a Free Consultation or take the Sellability Score Assessment to understand where your business stands today.
About the author: Zach Dogar is the founder of ETSC Company Sales, a boutique M&A advisory firm based in Oxford. He has over 30 years of exclusive sell-side experience advising technology and B2B services businesses on exits valued between £1m and £50m. He is a qualified business valuer (IMAA, ACCA, IIBV), a Fellow of the Institute of Consulting, and a Value Builder Certified Advisor.
