When you are looking to sell your business, learning about different buyer types can help determine who you want to sell to and what you want to get out of the deal. By understanding the motivation and goals of strategic vs. financial buyers, you can identify who you hope to sell to – and who you should target.
WHAT IS A STRATEGIC BUYER?
For those unfamiliar with the term, strategic buyers are often companies, suppliers, or customers within the same industry as your own. This results in companies whose products or services are synergetic with each other. As a result, strategic buyers focus on acquiring companies that bolster their existing business for the purpose of creating long-term strategic value for shareholders.
In some instances, a strategic buyer may be a company that is completely different than your own but is looking to expand into your industry.
WHAT IS A FINANCIAL BUYER?
On the other side of things, a financial buyer views an acquisition as an investment. When the financial buyer earns the maximum return on their investment in the company, they will typically exit rather than stay with the company. Financial buyers will dabble in various industries with their investments, rather than target the same industry with every acquisition. Common examples of financial buyers include venture capital firms, private equity firms, hedge funds, and more.
HOW DO I KNOW WHICH TYPE IS BEST?
Deciding whether you should partner with a strategic or financial buyer depends entirely on the objective of the seller. Consider some of the following questions when evaluating your decision:
- Are large returns your only priority when selling?
- Do you have requirements associated with the sale?
- Would you like to stay involved with the business?
In most cases, strategic buyers will offer more for your sale than financial buyers due to their long-term view of the synergetic properties of the acquisition. Therefore, if you are hoping to maximize the profit on your sale, consider a strategic buyer. Additionally, if you have certain covenants associated with your sale, such as what occurs to employees or locations, a strategic buyer is still a smart strategy.
In the event you want to retain some say in the operations of your organization, however, a financial buyer is likely the better option. This is due to the fact that most strategic buyers will already have the ability to run your organization due to the related experience, whereas financial buyers may not have the hands-on capability.
Choosing the right type of buyer entirely depends on your goals as a seller, but still requires an in-depth understanding of each type.
MAKE THE RIGHT SALES CHOICE TODAY
Learning about the different types of buyers and which is right for your business can be complex. Ensuring you choose the right type of buyer can heavily influence the success of your sale. Our professional advisors here at VR Business Brokers of Charlotte are here to guide you through the sales process and help you identify the right buyer for the right price. Contact us to begin preparing for the sale of your business today!