The distinction between a financial buyer and a strategic buyer is pretty straightforward.
A financial buyer acquires a company as an investment for returns. A strategic buyer acquires a company to advance a business plan.
This table offers some basic characteristics of the two buyer types.
|Financial Buyers||Strategic Buyers|
|Able to Pay High Multiple?||Maybe||Yes|
|Percent of Buyer Pool||90%||10%|
|Guiding Question||“Can this business grow enough to meet my investment return goals?”||“Is it cheaper to buy or compete?”|
Strategic buyers should have synergy with the target business. They will be looking for opportunities that provide savings and/or added revenue.
Strategic buyers aren’t always in the target company’s industry – some seek opportunities that run counter to their business cycle.
Strategic buyers should be able to pay more but might not choose to based on their definition of success.
It may be hard to find a strategic buyer – they will always make up the minority of the buyer pool.
Financial buyers abound. They aren’t necessarily as lucrative but could come with different qualitative advantages.
Financial buyers are in business to grow businesses. Their expertise in growth could benefit the target company.
Financial buyers are potentially fungible – meaning many will offer the same valuation and possibly even similar “soft” factors.
Examples of financial buyers are private equity and individual executives ready to own.
Do these differences matter? Not really. It’s one of those classic “It depends” answers.
If you want the best deal financially – saving money, making money, whatever it is – the answer is going to be clear. Someone is going to offer you more money than someone else.
But if you’re considering the plethora of intangible factors that go into making a deal a good one, it might not matter if the buyer is considered financial or strategic.
How you feel at the end of a deal is just as important as the size of your wallet. Most of the time, businesses simply sell to who the owner likes best.
Either buyer type could be the right choice. Here’s an example of a financial buyer being the best fit for a manufacturing & distribution company. For an example of a strategic buyer being the best opportunity for the seller look here and here.