Buying to Sell: How Acquiring a Competitor Can Boost Your Own Exit Value
Buying to Sell: How Acquiring a Competitor Can Boost Your Own Exit Value
When preparing a business for sale, most owners focus on organic growth—winning new clients, launching new services, and trimming overheads to steadily improve EBITDA.
While those steps are important, organic growth takes time. If you want to step up your company’s valuation more quickly before going to market, there is another route worth considering: acquiring a competitor.
Known as a "buy-and-build" strategy, acquiring a smaller rival 18 to 24 months before your planned exit can transform how future buyers value your business. Here is how it works, why it increases deal value, and what to watch out for.
How "multiple arbitrage" increases your sale price
In SME mergers and acquisitions, larger businesses almost always command higher valuation multiples than smaller ones. Buyers view bigger companies as more resilient, less reliant on a single founder, and easier to scale.
As a general example, if your business generates £500,000 in EBITDA, a buyer might value it at a multiple of 4x—giving an Enterprise Value of £2 million. If you acquire a smaller competitor generating £300,000 in EBITDA at a lower multiple of 3x (£900,000), your combined business now generates £800,000 in profit.
At that larger scale, your combined company may now attract a higher multiple valuing the business at £4 million. Even before winning a single new customer, the combination itself has created over £1 million in additional equity value.
Why a bolt-on acquisition appeals to your future buyer
Beyond the maths of valuation multiples, acquiring a competitor solves several common issues that buyers look for during due diligence:
- Reduced customer concentration: If your top two or three clients account for a large share of your revenue, buyers will see that as a risk. Absorbing a competitor’s client list immediately spreads your revenue across a wider base.
- Cost synergies: Merging two similar businesses allows you to remove duplicated overheads—such as overlapping software licences, accounting systems, or premises—lifting your overall profit margins.
- Geographic or service expansion: Buying a competitor in a neighbouring region or one with a complementary service line turns your business into a broader, more strategic platform for trade buyers or private equity.
- Stronger management depth: A well-chosen acquisition often brings capable middle managers into the business, helping reduce reliance on you as the founder.
What to consider before making an acquisition
Buying a competitor before selling your own company can be highly effective, but timing and execution are critical:
- Give yourself enough runway: Buyers will not pay a premium for two businesses that have just been bolted together on paper. You generally need at least 12 to 24 months after an acquisition to integrate teams, align systems, and show a clean set of combined trading numbers.
- Structure the purchase carefully: Taking on heavy bank debt to fund an acquisition can complicate your own exit later. Many SME buyers use a mix of existing cash reserves and deferred consideration—paying the seller over time based on performance—to keep the balance sheet healthy.
- Protect company culture: Bringing two competing teams together requires clear communication. Losing key staff or clients during a rushed integration will quickly erode the value you set out to build.
If an exit is two or three years away, looking at competitors through the lens of an acquirer—rather than just a rival—could be one of the most effective ways to maximise the value of your eventual sale.
