When a business owner is considering the possible sale of their company, one of the first questions he or she is probably going to ask is who wants to buy it?
There are typically two types of possible buyers in an M&A transaction. The first type of buyer is financial sponsors usually called private equity firms. These firms look to make acquisitions as financial investments. The second type of buyer is strategic buyers who look to make an acquisition of a business that is a potential fit into their current operations or enables them to achieve strategic goals.
The financial buyers generally are more concerned with the valuation and risk of an acquisition compared to strategic buyers. The financial buyers care much more about the target company’s current and projected financials and are generally in constant contact with financial advisers and intermediaries looking for possible acquisition candidates to pursue. By definition, financial buyers are very value conscious.
Strategic buyers are generally looking for companies that can fit into their own operations and, other than the obvious candidates, can be more difficult to identify. Strategic buyers or just “strategics” usually are competitors, suppliers or other companies that operate in the seller’s industry or related industries. The advantage of these types of buyers is that they tend to operate a similar a business so it may be easier for them to understand the seller’s operations, motives for selling, and possible risks.
Depending on an owner’s motives for selling and his or her desire for involvement post-closing, either type of buyer may be appropriate. Having an experienced M&A adviser to identify, contact, negotiate, and structure a transaction with these buyers is essential in order to ensure the most value for the business and the best terms to make sure that the owner is properly compensated and, if wanted, a desirable role with the company after the acquisition is complete.
