Financial Vs Strategic Buyers: A Company Seller’s Primer

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The terms “strategic buyer” and “financial buyer” undoubtedly will come up as you start discussing the sale of one’s business using your accountant, attorney or merger and acquisition advisor (a smart investment banker or business broker). Your knowledge will assist you to chart the most effective course for selling your small business.
Just what is a financial buyer? Put simply, a this type of buyer is definitely an investor. It is in the industry of purchasing others. These buyers will assess the buying your company that can compare with you’d probably evaluate the acquisition of the stock for the currency markets. They aren’t within your industry so they are only looking for a return of investment. Essentially, financial buyers are curious about earnings and historic growth.
Since these buyers are investors, they typically seek out firms that are well-managed and still have seasoned management teams available. These buyers will scrutinize your fiscal reports thoroughly searching for consistent earnings and, preferably, earnings growth.
What is a strategic buyer? These buyers usually are not simply investors. Instead, these are firms that are already within your business or possibly a similar business. Stay healthy and fit to realize business synergies from the businesses they acquire.
The preferred business synergies differ among this kind of buyer. They include:
Increasing revenues
Increasing market share
Expanding into new geographic markets
Protecting or enhancing a supply chain
Diversifying the customer base
Realizing economies of scale
Is certainly one kind of buyer much better than one other? This is the classic the event of one size doesn’t fit all. Several of the things you need to bear in mind when deciding that sort of buyer you prefer to negotiate.
Price. A strategic buyer will usually pay more to get a business since it sees value available synergies of mixing its business with the acquired business.
Evaluation of the Business. A strategic buyer will evaluate how your business suits having its existing business. The financial buyer will evaluate your company from a purely financial perspective with all the main focus standing on historical financial results.
The training Curve. A strategic buyer is within your industry or related industry. Consequently, it may quickly determine if your small business is a nice-looking acquisition candidate. On the other hand, a monetary buyer doesn’t have experience in your industry. It will do extensive research and analyses to ascertain whether or not this finds your industry attractive. These studies and analyses usually takes quite a bit of time.
Due Diligence. Just because a strategic buyer already understands your industry, it’s diligence process will likely be quicker. This sort of buyer already knows players inside your industry, your clients, your suppliers and the way your back-office infrastructure should work.
Time and energy to Closing – Strategic Buyers. A strategic buyer’s knowledge of your industry helps it decide in short order should your clients are one it would like to purchase and has the bucks or even the banking relationships to seal quickly. Financial buyers are starting without expertise in your industry and frequently borrow to get businesses that can time.
Time and energy to Closing – Financial Buyers. Financial buyers are experienced at buying businesses and have seasoned M&A teams dedicated to getting your “deal” kept away from being encumbered with a strategic buyer’s day-to-day duties of running its very own business.
Retention of Management Team. Due to financial buyer is an investor without having experience of your industry, it is highly likely that it will maintain management team and other employees and will not close any of your facilities. Strategic buyers, conversely, are well-versed inside your industry and may even have management personnel who can replace your management team and may even have facilities that can replace your facilities.
Conclusion. Your merger & acquisition advisor will in all probability bring you Letters of Intent from both kinds of buyers. It’s in your greatest interest by sitting together with your merger & acquisition advisor and evaluate each of those Letters of Intent. As you do, review each together with the points made above in mind. This will go a long way in helping you select the top buyer for the business.
© 2015 Barbara J. Hartung