The Difference Between Strategic and Financial BuyersMay 6, 2015
Identifying the Potential Buyer for Your Business.
If you have ever thought about an exit strategy for your business, one of the first things to consider is who is a potential buyer. There are two broad ways to describe the types of buyers for your business: financial buyer and a strategic buyer. Both have very distinct personalities and motivations for buying a business. It is a good idea, if you are thinking about, or in the process of, selling your business, to understand what the difference between strategic and financial buyers are and what they mean for you and your business.
What is a Financial Buyer?
A financial buyer is typically someone who wants to buy and invest in a business who wants to use that business as a means to obtain a return. These types of buyers can be companies or individuals. There is not a preference in the type of business, just what they are able to offer at that moment.
The financial buyer sees the investment return in the business and will likely make adjustments to reduce hard costs and increase profits. They might even want to buy other companies in the same field to increase their potential return on investment. These buyers will usually have a goal of getting out of the business within 5-10 years. The timing of a sale by a financial buyer depends on the buyer and the type of business, as well as how successful they have been with it.
What Are Strategic Buyers?
Strategic buyers are a bit different, as they tend to have a long-term goal build around the acquisition. They want to see how the business they are buying actually fits into their existing and future business plans. These buyers may even decide that they want to expand the business. Perhaps they want to bring out new product lines or bring the business to new markets. These buyers are more likely to work with the company and find ways to improve it and to eliminate any weaknesses it might have.
Strategic buyers can help a company look at their systems including tech, research and marketing in order to find ways to improve operational efficiency. Unlike the financial buyer, the strategic buyer is typically more active when it comes to development the business. Because the strategic buyers tend to see the potential that a company has and can often create efficiencies with their existing business, they are often willing to pay more for a company than a financial buyer will.
With a knowledgeable legal team at your side specializing in business and corporate law you will be at ease through the investment process, contact Marshall Socarras Grant, P.L., to learn more.