Speak to direct competitor after NDA?

May 25, 2022

by a searcher from London Business School in Johannesburg, South Africa

I am working on a deal in a niche part of a certain broader industry, with only 4-5 players direct competitors in the niche.

I have a very strong relationship with the sellers, who are particularly sensitive about news of their selling leaking out. I have already signed an NDA.

By chance, this morning a close contact of mine who knows I am looking at this broader industry reached out to say he had met someone whose father in law (name unknown at the time) was selling a business in the broader industry and asked if I wanted to be introduced. I was excited at the chance of a bolt-on acquisition in the same broader industry as the current deal is a little small.

Following the introduction by email it turns out the other company is a direct competitor in the niche, and an unfriendly one at that.

On one hand I believe the businesses could be really quite complementary together.

On the other hand everything else about the situation screams red-flag in terms of ethics, and i'm sure speaking to this owner even without revealing any information would really anger the first companies sellers.

I've got to make excuses and pass... right?

Bonus points for advice on how to turn down a request for a meeting 30 minutes after asking for an introduction, without revealing the fact i'm looking at another player in that industry!

Reply by a professional
from Dartmouth College in Los Angeles, CA, USA

You may be limited here depending on the specific language in your NDA, but in the future when you sign NDA's there's typically language that potential buyers add which makes clear that you are only restricted from talking to customers, suppliers and any third party about the target company and its business relationship with the target, not a bar against talking to such parties in the ordinary course of your business, which in your case is acquiring companies. You still have to tread lightly in these situations, but it's best to try and narrow NDA language as much as possible. A lot of PE and other pro buyers won't limit their ability to look at other deals so they are very attuned to this issue. But just take a look at what you actually signed and see what it specifically restricts you from doing. And obviously you have to be careful not to share confidential info from one party with the other. But generally speaking, it's the seller that agrees to exclusivity, not you.

Reply by a searcher
from Harvard University in San Juan, Puerto Rico

It's not unethical to chat with the owner of the 2nd company, as long as your current NDA allows it, which as Brian, mentions it probably does. It doesn't sound like you're under LOI with the 1st company or even close to it, so it would actually be imprudent for you to stop your funnel at this point. You don't want to get to enamored with one deal and then when it falls have to start all your funnel from zero. As a side note, this is what traditional searchers do all the time when they're doing roll ups, typically they have a couple of deals lined up to close at the same/similar time.

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