With the entrance of a strong competitor: you better sell

             Sometimes the entrance of a competitor changes the rules of the game within an industry. The companies in the sector have prospered in a stable environment until the entrance of a multinational threatens to flood the market, lower prices and break any previously set standards.

               The owner sees that he doesn’t have the same weapons to compete with and is forced to make the decision to search for a partner that can support him and provide competitiveness under equal circumstances in the distribution channel.

               This happened to us with a company that specialized in organic food. The industry was still fairly new and the margins were still very healthy. The entrance of an American multinational company in the sector caused a large disruption and started a revolution in prices and a war for shelf space in the food industry. Our client identified the danger and hired us to look for a group that had the resources and the synergies to compete head to head in the industry. Meanwhile, a large European group was found with the necessary strengths to compete in the new environment and would benefit from our client’s strategic position in the organic food space.

               The company sees how its margins are getting stretched and each time it becomes more difficult to generate profits. It is a medium sized company that can’t benefit from the same economies of scale and other advantages of large companies yet it doesn’t have the flexibility of smaller companies either.

               The owner is conscious that the product offering is small and not very differentiated, with mostly mature products and few products in development. The company’s bottom line is hurting.

               In these cases, understanding that the future will bring a continuous deterioration of value and that an economic crisis or losing a key client can be devastating, might be enough motivation to look for a buyer and secure the value before it’s too late.

               Sometimes the appearance of substitute products allows a business owner to see that the long term is not going to be profitable with his or her current business model and that something must radically change. However, the business owner is not capable of accomplishing the transformation alone. The owner anticipates that other relevant competitors will abandon the sector and decides not to be the last to do so.

We had a client with a company that manufactured bridge cranes that was experiencing continuously shrinking margins. The company was owned by two family branches: one managed the company and the other challenged all the decisions made by the management team. Tensions had escalated and there were more family politics involved than the politics of the company. This period coincided with the aggressive entrance of two multinationals that started to lower prices in order to eliminate smaller competitors. If you want to compete against those types of titans, you require a united and aligned team with a common strategy, which seemed impossible in this family. They decided to sell the company before it was too late. They gave us a mandate and we sold the company to a German group that was rapidly expanding to an international level.

Selling the company while it is still relevant can be much wiser than selling it when the larger competitor has taken most of the customers and market share.

@EnriqueQuemada

www.onetoonecf.com