How do you buy a competitor?

How do you approach a competitor?

Owner to owner, in private, and about their goals before yours. A competitor's owner has heard from brokers and private equity. What they have not heard is a credible plan for their customers and staff from someone who knows the trade.

• Go direct. Call or write to the owner, not the general manager or a salesperson. Ask for a conversation, not a price.
• Lead with their exit, not your growth. The IBBA's Q2 2026 data shows retirement is the top reason owners sell. Ask what they want for their people, their name and their timing.
• Be ready to say how you would pay. Sellers received 83% to 92% of deal value in cash at close in the same data. If you need a seller note or rollover, say so early.
• Expect a broker if they are serious. On Main Street deals under $1 million, brokers typically charge 10% to 12%, and the seller pays. A broker does not stop you from buying. It changes the pace.

How do you protect confidentiality on both sides?

Both of you are taking a risk. The seller is showing a competitor its customers, pricing and people. You are telling a competitor what you can afford and where you want to grow.

1. Sign a mutual NDA with a non-solicit. Neither side recruits the other's employees or customers if the deal fails.
2. Disclose in stages. Summary financials first. Customer names, pricing and payroll only after a signed LOI, and the most sensitive items last.
3. Use outside reviewers for the most sensitive data. Your CPA or Quality of Earnings provider can test customer revenue and margins without your sales team seeing names.
4. Ask counsel about competitor information exchange. Sharing current prices or bids between competitors can raise legal issues even in small deals. A short call with a lawyer before diligence is cheap.

LOI exclusivity typically runs 30 to 90 days, and due diligence 30 to 60. Keep the group who knows small during that window.

How do you underwrite synergies without overpaying?

Pay for the business as it is. Keep the synergies as your margin of safety and your return. If you price them in, you hand the seller the value you will create and keep all of the risk that it does not happen.

The SBA enforces part of this for you. Coverage is measured on historical or adjusted historical cash flow, and projections cannot be used to pass the test. Sort expected effects into three groups:

• Cost synergies: one office, one software stack, one bookkeeper, combined purchasing. These are the most reliable.
• Revenue synergies: cross-selling, filling technicians' schedules, wider territory. Count these at zero in the price.
• Dis-synergies: customers who used both of you and now drop one, customers who leave because they wanted an alternative, and staff who leave because of the change. These are real and often ignored.

Worked example: pricing a competitor on standalone earnings

Assume an HVAC competitor with $500,000 of SDE. BizBuySell data puts HVAC at 2.79x SDE on average. The salary, cost and synergy figures are assumptions for the example. The rate is the 10% maximum for loans over $350,000 when prime was 7% in September 2026; check current prime.

1. Price at the average multiple: $500,000 x 2.79 = $1,395,000.
2. Replace the owner with a branch manager at $120,000: standalone earnings $380,000.
3. Add $105,000 of working capital, fees and closing costs: total project $1,500,000.
4. Injection at 10%: $150,000. Loan: $1,350,000. Annual payment over 10 years: about $214,100.
5. Coverage on standalone earnings: $380,000 / $214,100 = about 1.77x, above the 1.15x Business Expansion test.
6. Expected cost synergies of $80,000 a year are your upside. If you priced them in at 2.79x, you would pay $223,200 more for savings you have not yet achieved.

What goes wrong after you buy a competitor?

• Customer loss. Some customers chose the competitor because it was not you. Call the top accounts with the seller in the first weeks.
• Key employee departures. Identify the people who hold customer relationships and agree their roles and pay before closing.
• Price clashes. Two price lists for the same service will surface. Decide in advance how and when to align them.
• Systems migration. Moving scheduling, billing and dispatch is where service breaks. Do it after people are settled, not on day one.
• The seller leaves too early. Under SBA rules the seller may stay as a consultant or employee for up to 24 months in aggregate. Use that time.

If you want part of the price to depend on retention, an SBA deal cannot use a seller earnout. Outside the SBA, earnouts are commonly 10% to 30% of value in the lower middle market, but only 63% pay in full. A seller note is often the simpler tool.

Where these numbers come from: seller motives and cash at close from the IBBA Market Pulse Q2 2026; broker commissions from Investors Club; LOI and diligence timing from BigIdeasDB and BizBuySell; the HVAC multiple from Beancount's analysis of BizBuySell data; SBA rules from SOP 50 10 8.1 via Beancount; the rate cap from NerdWallet; earnouts via Livmo. SOP 50 10 8.1 applies to loans that receive an SBA loan number on or after October 1, 2026 (SBA Information Notice 5000-880695).

Related questions

Is a competitor worth more to me than to other buyers?

Usually, because you can cut duplicate costs that an outside buyer cannot. That is exactly why you should not pay for those savings. The seller's alternative buyers set the price, not your synergies.

When should I tell my own employees?

After the purchase agreement is signed, or at closing, with a plan for what changes and what does not. Before that, keep it to the people who must work on diligence.

Can I buy only a competitor's customer list?

Sometimes, as an asset purchase. Without the people and systems that serve those customers, retention is the main risk. Price it on retained revenue, with part paid later through a seller note.

What comes next

Buying competitors is how platforms grow, and the price you pay depends on which side of the add-on line you sit: What's the multiple difference between an add-on and a platform?

Related articles

• Can I use an SBA loan to buy a second business?
• Is my first business a platform, or just a business?
• I already own a business. How do I finance buying a second one?
• What's the multiple difference between an add-on and a platform?
• How do you build a holding company for acquisitions?

Meraki Dealmakers is a service of Meraki Partners, LLC, an advisory firm. It is not a broker-dealer, investment adviser, business broker, law firm or accounting firm. This article is general information, not legal, tax or investment advice.