By Mike Bloom & Josh Bennett
Determine the Right Type of Buyer for Your Business
The terms strategic and financial buyers are used to describe two different types of buyers in the context of a transaction.
A strategic buyer is a public or private company that looks for companies within the same industry that can be integrated into their existing operations. A strategic buyer could be a competitor or a supplier. Corporate acquirers often pursue growth through acquisitions to help them achieve financial synergy and operational synergy through economies of scale.
Strategic buyers are often willing to pay a premium for an acquisition and can enable the seller to walk away completely and achieve the most liquidity. However, strategic buyers may not be the best fit. An acquisition can lead to a lot of role duplication, especially at the management level. As a result, members of management may lose their jobs or become subordinates. Customer loyalty to the brand may wane and company cultures may clash.
Private equity groups (PEG’s), family offices, and high-net-worth individuals are financial buyers. Their investment criteria is based primarily on the financial performance of the company and future exit opportunities.
PE firms are looking to buy companies with competitive advantages and stable, predictable cash flows. If you’re looking to sell, but are considering staying involved with the operations of your business, many financial buyers welcome that discussion.
Financial buyers almost always require your involvement in the short term or for a few years to assist with the transition. In a transaction with a financial buyer, the effects on customer and employee morale are mitigated.
However, if you no longer have the desire or ability to work in your business, a financial buyer may not be the best fit. Also, financial buyers generally aren’t willing to pay as much as strategic buyers upfront.
Whether a strategic buyer or a financial buyer is right for you depends largely on your personal and financial goals.
Have you identified a financial or strategic buyer that might be your potential acquirer? Do you think you are ready to sell your business? Take the Seller Readiness Quiz to see if you are ready to begin the sell-side process.
About Piedmont M&A Advisors
Piedmont M&A Advisors is a boutique investment banking firm specializing in buy-side and sell-side transactions for businesses with revenues between $10 million and $200 million. We also provide capital raising, strategic advisory, and valuation services.
To learn more about Piedmont M&A Advisors, or to discuss questions you might have today about selling your business, contact us today for a free consultation.