For some reading this article, the answer might be obvious. However for those that have run sellside deals without combing through the full list of competitors, or is perhaps executing said deal at this moment, this could be worth the 5 minute read.
There are two core reasons that competitors make good buyers. Deal motives and deal synergies.
How does that work? Whenever there are two businesses competing for the same market, there will most likely be both (a) strategic incentives for an acquisition and (b) overlapping operations.
The presence of these two things is almost always accompanied by motive and synergy, things that are very valuable to anyone selling a business. In fact, these two characteristics are arguably the two most important buyer traits.
Why? Because they have an overwhelming influence on both the interest level of a buyer and how much it’s able to pay.
First, the greater the need for an asset, the more a buyer will be willing to pay to acquire it. Second, the greater the synergies involved in a combination and consolidation of the two businesses, the higher the valuation it’ll ascribe to the target company, and therefore the greater its ability to pay.
Competitors have a high likelihood of ranking near the top of the list on both the motives scale and the synergies scale. When you’re ramping up to build a buyer list, start with your direct competitors.
It’s easy to do this from your Axial account interface. Screen for competitors by going to your recommended buyers list. Hover over the company name to view a summary of the business, products, and market position. Start with the players that compete directly in your space. These tend to be the highest probability buyers given their tendency toward a higher level of deal interest and greater ability to pay.