Selling Your Sign Company to a Competitor

LAST MONTH WE talked about the pros and cons of hiring a professional “business seller,” brokers and M&A specialists. Did you decide that you want to try to handle this on your own and not spend 5-10% or more of the sale amount on fees? Maybe you don’t have a relative or employee that can or wants to buy your signshop? Are you a bit dubious about the franchise option? What’s a tired owner to do? Who else might be interested in buying your business?

Why, your friendly neighborhood competitor, of course!

This transaction type could be a buyout, where your business stays as a standalone operation under a competitor’s ownership; or a merger, where both companies still operate, but under the purview of the buying company; or sometimes the buyer will even rebrand their business to your company’s name; or a “tuck in” where the buyer selects the assets and employees they want and simply close your location, folding everything into their shop; or finally, they could just buy your client list and you dismantle everything else.

As with all big decisions in life, selling out to a competitor comes with its own positives and negatives, as well as other considerations.

Pros:

• There’s a good chance you already have some sort of relationship with your competitors, so it’s not really a “cold” situation.
• You probably know enough about each other to understand what the synergies of an acquisition would be.
• A higher purchase price might be offered because of the knowledge of those synergies.
• There should be no brokers or other sales fees involved in this transaction so more money in your pocket.
• An opportunity might present itself for you to keep working in some capacity for the new owner once the business sells, if you both want that.
• You know the competitor already understands your industry, which might lead to a smoother transition.
• Customer base retention could be higher due to selling to an entity known or familiar to your clients.
• “Keeping business local” is assured by selling to a competitor and not to a national chain.
• Employees might feel more secure with a local competitor.
• Knowledgeable competitors might be more flexible and creative with buyout terms.

Cons:

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• Let’s start with the elephant in the room… Disclosing sensitive financial and sales information to a competitor takes nerves of steel.
• There might not be as many synergies as hoped, and with a duplication of resources human and mechanical, the selling price might not be as much and your employees might not be needed.
• Years of low-level “disliking” a competitor or thinking of them as “the enemy” might negatively affect negotiations and interactions on both parts.
• It might not be within your skillset to sit by and watch your competitor operate your business when it turns out they do things differently than you would have done.
• Once you start meandering down that road, it might not be possible to go back to how things had been if there isn’t a successful culmination of negotiations.
• Differences in culture and management style might negatively impact your employees.
• Your customers might not want to do business with the buying competitor; otherwise they might have already been their clients.
• Competitors might seriously undervalue your business for a plethora of reasons, not the least of which being that they are not negotiating in good faith, or are just petty jerks.
• Any deal with a competitor will likely involve some type of “earn out,” where you are paid based on the retained business from your clients. This situation has you taking on risk (losing/tracking sales) in which you have no control over the outcome (not your clients or your employees anymore).

In my quest to sell my shop, I had dealings with two local competitors, both of which left a mildly bitter aftertaste.

Once I made the mental and emotional decision to try to sell my print/signshop, I reached out to our regional trade association for a candid and circumspect conversation with a longtime industry executive, who offered some “leads” on companies which were in an acquisition phase and might be a good fit. I took that information and made some casual inquiries, culminating in a few in-person meetings, signing of NDAs, an exchange of information with one company, and then… nothing. The indications I received during those interactions were without exception positive. However, when push came to shove, this competitor was either not a great communicator or was purposely trying to put off a decision.

From my perspective, that was not cool. If the competitor was simply a poor communicator, that’s good information to know – like a first date, when someone shows you who they are and should be on their best behavior but are not – that’s something to pay attention to! And if they were purposely dragging their feet – perhaps leveraging a different deal using my company – well, that’s also good to know.

In my case, it turned out to be both situations, and after an unacceptably long time, during one of my polite follow ups, they finally admitted they bought another company and didn’t think my company was a “good fit.” Not a great feeling; however, a bullet dodged in the long run – these weren’t trustworthy or forthcoming people in my opinion and experience.

The other local competitor was the “whale” in our market, growing by acquisition and winning lots of “largest” awards. I casually knew the owner, although we never had any direct business dealings, and during a conversation, we both tiptoed around the idea of talking more seriously about a potential deal.

While my gut was screaming bloody murder for me to run as fast as my arthritic knees could carry me in the other direction, my head was saying things like:

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• Well, this might work.
• They’ve got enough money to give me a good offer.
• My employees might have good growth opportunities at this larger company.
• Their equipment and capabilities could certainly service my clients.
• It’s possible there is a culture “overlap.”

The wishful thinker in me won out over my gut and we signed NDAs. In my quest to be seen as an accommodating, speedy and communicative partner, I turned over every scrap of sensitive information requested of me in record time. I submitted to questionnaires, endless emails, even a deposition-like meeting with the competitor’s executive team. I was prepared with all my answers, and each interaction led me to believe my company would be a great fit.

The competitor must have thought so too, because I received an offer to buy my shop. The buyer though came up very short. Despite my crystal-clear communication regarding the range of acceptable sale price and terms of the transaction, the competitor’s offer was a small Venus to my much larger Mars — in the same galaxy perhaps, but nowhere close to my minimum requirements. Perhaps they thought I would not be able to get exactly what I wanted and decided to risk insulting me by providing a “low ball” offer? Maybe they were so used to buying distressed and financially unsuccessful companies that they forgot how to recognize a good value? Did they discount my negotiation skills and savvy because I am a woman? Was my company’s worth realized too late and ego got in the way of upping the offer? Only one person knows, and I’m sure they’re not telling!

Happily, I found my franchise solution and got everything I wanted in a transaction. I was dealing with professionals without paying a high fee; I was negotiating with honest people in good faith; I felt respected and seen by all of those involved in the deal. I got my fairy tale ending.

Now that I’ve given you a few options about the mechanisms for selling your signshop, next we can go over the steps you can take right away to prepare to sell your company for the highest possible price.