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