Is Buying Your Competitor a Good Idea or Bad?
Tom Marx and Paul Cooperstein
In our 25 years as business advisors and marketing consultants in the aftermarket, countless times
clients have asked us "Should I buy my competitor to grow my business?"
There is no simple answer, but growing market share and increasing margins/profits through acquisition
is often a good opportunity today for the following five reasons. We wrote this article for auto and heavy
duty distributors, jobbers and retailers - however the basic principles are in intact:
1. Expand your geographic market
One of the biggest recent consolidations was the purchase of CSK by O'Reilly Auto Parts. O'Reilly added
stores in Western markets and grew into a nationwide chain in months that otherwise would have
required years of organic and new store growth. And they were able to leverage the asset to pay for this
2. Take out a competitor
One compelling reason to buy a competitor is to eliminate price pressures, especially if the competitor is
the low-price leader. With the competitor gone, customers have one fewer location to shop, and your
opportunity to market branded and private label products increases. Eliminating a competitor may also
reduce the market's advertising clutter.
3. Increase market share and reduce costs for more profits
Most businesses organically grow revenues by perhaps 3-5% annually and market share 1-2% annually.
Contrast that with a 30% annual revenue growth and 10% annual increase in market share that could be
realized by buying a competitor. You also gain leverage for better prices and terms with suppliers due to
your larger purchasing power. Increased margins then improve cash flow, allowing you to complete
4. Secure valuable supplier contracts
A competitor may have valuable, exclusive supplier relationships, including direct imports and direct from
US-based suppliers. These contracts, spread across the larger footprint achieved through acquisitions,
may generate substantial revenue at higher margins.
5. Gain coveted locations
Securing ideal locations - a high-traffic corner location or one that is in the middle of an industrial or
auto/truck repair district - may not happen unless you buy it and convert it to your brand. Run the
financials to ensure this is smart use of your human and financial capital.
We recommend you develop an "Intelligent Strategy" about how to best grow your business. Consider all
the pros and cons of acquiring a competitor. Acquisition cost and value is more than just dollars invested.
It's also long term strategic positioning as well as your own exit strategy.
2175 E Francisco Blvd. Suite F, San Rafael, CA 94901 • Tel 415-453-0844 • Fax 415-451-0166 • email@example.com • www.marxgroupadvisors.com