Jun 10, 2009

Strategic Buyers vs. Financial Buyers

How is a Strategic Approach to Buying a Business Different than a Financial Approach?

Here's the key differences:


Strategic Buyers:  

The strategic buyer identified key companies, patents, products or services fitting for the buyer’s future long-term viability.  Only then does the buyer find the companies that have the products or services that best fit the company’s future needs.  Only then does the buyer dive into the past financial performance of each of the prospects within that business segment or industry.  The strategic buyer’s approach considers a plethora of variables such as integration and streamlining, redundancy reductions, rollouts and rollups, cultural fit, and a sense for how the acquisition will better position the company competitively for the future.

 

Financial Buyers:

The financial buyer screens prospective company deals based on the past financial performance ratios first and foremost, and then considers which of the companies who measure up to the pre-screening are the best deals from a strict return-on-investment standpoint.  The financial buyer’s discipline on the numbers helps him determine the single best investment for his money.

 

 

 

Strategic Buyers

Financial Buyers

 

 

 

Principles

Private or Public Company

Private Equity / Venture Capital / Hedge Fund

Objectives

Use target’s strengths to enhance current operations, reduce competition, etc.

Improve operations of target to eventually make an “exit” and earn an attractive ROI in the process

Time frame

Indefinite

About 5 years

Pricing

Historically higher than with financial buyers as they pay a premium for synergies

Historically lower than with strategic buyers as lower purchase prices are central to hitting ROI goals

Management

Replace existing staff with buyer’s own staff

Keep current management in place, and encourage them to invest in new equity

Funding Sources

Cash or company’s stock

Cash or Loan (from equity fund or lenders)

Post Transition, Owners Role

Usually ends

Continues usually with minority ownership

Vision

Focuses on Future first, then on the past

Focus on Past first, then the future

 

27 comments:



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