An industry competitor approached us with an unsolicited off-market offer to buy our company, promising a quick, quiet closing without paying investment banking fees. How do we evaluate this direct approach against running a formal competitive M&A process?

Question

Tyler Smith · Accepted Answer

Direct competitor approaches are seductive because they seem fast, discreet, and spare you five to six percent in banker commissions. However, an unrepresented owner negotiating one-on-one with a sophisticated competitor almost always leaves money and protective deal terms on the table.

Competitors approach you preemptively precisely to avoid bidding against other buyers. In a bilateral negotiation, the buyer dictates the timeline, the valuation multiple, the working capital terms, and the indemnification limits because they know you have no immediate alternative. Without the competitive tension of a formal process, you lack leverage to push back against aggressive diligence findings or retrades.

Furthermore, sharing sensitive customer lists, margin profiles, and operational secrets with a competitor during due diligence presents immense commercial danger if the transaction falls apart. Before sharing any proprietary data, execute a strict, customized non-disclosure agreement that includes non-solicitation covenants preventing them from hiring your personnel or targeting your customer base for at least two years.

To evaluate their offer, establish your valuation floor internally using your EOS V/TO and three-year financial projections. Inform the competitor that your board requires a formal Letter of Intent with fully detailed deal structure, including cash at close, working capital targets, and escrow terms. If their headline number does not command a distinct premium over market benchmarks, retaining an M&A advisor to run a targeted process typically yields fifteen to thirty percent higher net proceeds, easily offsetting the advisory fee.