Balance the Risk/Return Trade-offs of Selling to a Competitor

We’re currently working with a client who is deeply resistant to the idea of even conducting “blind” outreach to competitors, fearing it could jeopardize his entire business. This mindset stems from guidance provided by a previous M&A advisor who claimed—quite boldly—that one should never sell to the competition under any circumstance. While a healthy degree of caution is wise, completely avoiding competitors can severely limit opportunities for a successful strategic sale.

In this case, the client operates in a high-volume, low-margin commodity space—an industry where differentiation is minimal and pricing takes precedence. Even if buyers and suppliers learned of a potential sale, it’s unlikely their behavior would change, as loyalty in such markets is often price-driven, not relationship-based. For businesses like his, competitors often represent ideal buyers with aligned interests and strong incentives.

However, for companies with more sensitive or differentiated models, the risks of selling to a competitor are greater. These might include:

• Technology firms with proprietary IP
• Staffing agencies, especially those in high-demand fields like software
• Customer-centric service providers.

In these cases, discretion is critical. If a competitor shows interest, sensitive information should only be shared on a strictly need-to-know basis—and only when it’s essential to valuation. Sellers should remain cautious and deliberate when disclosing confidential data that could harm them if a deal doesn’t close.

Understanding the nature of your business—and the associated risks—can help strike the right balance between opportunity and protection in strategic M&A.

The big question is relevance:

Even with NDAs or confidentiality agreements in place, safeguarding your business should always take precedence over simply closing a deal. While selling to a competitor isn’t necessarily a death sentence for your business—especially if they aren’t overly aggressive—it does come with heightened risk. Competitors may have strong incentives to poach your customers or employees, particularly if they operate in the same region or serve similar clients.

The nature of the risk varies by industry. In some cases, disclosing too much too soon can endanger relationships with customers, employees, suppliers, or even the core of your product. That’s why it’s critical to identify your business’s vulnerabilities before entering discussions. Conducting a “worst-case scenario” analysis is often a smart step in preparing for sale.

That said, some of the most promising strategic buyers—and those most willing to pay a premium—are often competitors. Avoiding them altogether could mean missing out on the best opportunity. Just proceed with care, proper planning, and sound advice.