The sale of a business to a strategic buyer is very different from a sale to a private equity firm or a financial buyer. The latter two types of buyers are usually looking to acquire a target business for the purpose of building in certain efficiencies or investing in the company for growth and then exiting the business within a few years. In contrast, a strategic buyer is a buyer who acquires a business for the specific purpose of integrating the target business into their own long-term business plan.
There are many reasons for a strategic buyer to acquire a target business. Common reasons include expanding the geographic reach of their business, expanding their existing customer base, acquiring companies in their supply chain for vertical integration purposes, or adding specific services or products that may compliment the strategic buyer’s current business operations.
Selling a business to a strategic buyer can be attractive for a number of reasons. First, many sellers like the idea that the purchase of their business is a long-term investment. The transaction is not part of a larger plan to sell the business within a few years. Second, strategic buyers tend to focus on cultural fit of staff and employees due to their long-term planning outlook. Finally, the purchase price of the target business may be higher than it would be in a transaction with a private equity firm or financial buyer because the strategic buyer may be motivated by factors other than financial metrics.
Selling to a strategic buyer does have some downsides. A strategic buyer may terminate employees after acquiring a business due to the redundancy of certain positions, such as employees that perform administrative functions. Strategic buyers are also less likely to pay the full purchase price in cash at closing and are more likely to use a combination of cash and seller financing.More Publications