A Comparison of Financial Buyers and Strategic Buyers

|Pick the Right Partner

Many business sellers, upon initial consultation, say that they don’t have a preference between a strategic buyer or a financial buyer for their business; however, if we dig a little deeper into the desires and objectives of the exiting owner, there is often a skew towards one or the other based on their post-transaction goals.

For business owners who want to retain equity in the business, keep their company at its location and ensure their key management and employees are cared for, their best scenario is often a financial buyer. This means that their company will be its own stand-alone “platform” company and that any future strategically-acquired businesses are considered additions to this business. Being the platform, there is often a desire to keep strong management and employees in place to grow the business. Another benefit that often comes with financial buyers is the opportunity for the exiting owner (and sometimes his/her key team members) to invest in the business going forward and retain a stake in the company.

For sellers who wish to get the absolute maximum dollars or completely step away with no continuing ties to the business (outside of their transition period), a strategic buyer is often the best fit. Strategic buyers tend to be able to pay more than financial buyers because there is usually a layer of cost savings implemented post-transaction via duplicative overhead, excess rent costs or lower supplier costs going forward. With the cost of the business smaller upon integration, many strategic buyers can afford to “pay up” for a company that adds to the geographic footprint, new services/capabilities or deep customer list they desire. It is also common for exiting owners to have a shorter transition period post-transaction because the strategic buyer is already in their space and comfortable with the industry, thus the learning curve is shorter.

When you begin planning your exit strategy, weigh your objectives when determining the type of buyer that will be best for your business.

That being said - no two buyers fit the same box and the scenarios above are only broad characteristics of these two types of buyers. Each buyer has their own model and it isn’t to say that a financial buyer won’t pay more for a company they really want or that a strategic buyer won’t offer roll-over equity to stakeholders. Know that as the seller, you are in the driver seat, and you get to decide who is going to be the next owner of your business.

Question: Have you outlined your exit strategy goals? What is your main objective in selling?

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