When is it a good time to sell your company? This decision need to be all business and no emotional attachment. The time to sell out is a hard decision but if you have taken the business as far as you can then its time. 
The larger competitor will offer a buy out to eliminate the competition. If you refuse expect them to challenge your business patents and other properties. If they are large enough they can starve you out. Once they have damaged your business the offer will be lower. Even Mo Howard West Virginia Football knows when to give up.