7 Reasons Why You Need a Strategic Buyer for Your Business
A strategic buyer is someone who acquires a business for its strategic value, such as expanding their market share, increasing their product portfolio, or enhancing their competitive advantage. A strategic buyer is different from a financial buyer, who is mainly interested in the financial returns of the investment.
Key Takeaways
A strategic buyer is someone who acquires a business for its strategic value, such as expanding their market share, increasing their product portfolio, or enhancing their competitive advantage.
To identify a potential strategic buyer for your business, you need to analyze your industry and market trends, research your competitors and customers, and network and communicate with potential buyers.
Selling your business to a strategic buyer can bring you many benefits, such as higher valuation, faster closing, better terms, and greater satisfaction.
To sell your business to a strategic buyer, you need to plan ahead, be proactive, be realistic, be discreet, and be professional.
You also need to hire a professional advisor or broker who can help you find and contact potential buyers, prepare and present your business information, negotiate and structure the deal, and facilitate the closing process.
In this article, we will explain what a strategic buyer is, how to identify one, and why you need one for your business. We will also answer some frequently asked questions and provide some tips on how to attract and negotiate with a strategic buyer.
What is a Strategic Buyer?
A strategic buyer is a company or an individual who buys a business for its strategic value, rather than its financial performance. A strategic buyer may be:
- A competitor who wants to eliminate or reduce competition, gain access to new customers or markets, or acquire new technologies or capabilities.
- A supplier or a customer who wants to integrate vertically, reduce costs, improve quality, or increase loyalty.
- A company in a related or complementary industry who wants to diversify their offerings, cross-sell products or services, or leverage synergies.
A strategic buyer typically pays a premium price for the target business, because they expect to generate more value from the acquisition than the current owner. They may also offer non-financial benefits, such as retaining key employees, preserving the brand identity, or maintaining the social mission of the business.
How to Identify a Strategic Buyer?
To identify a potential strategic buyer for your business, you need to:
- Analyze your industry and market trends. Look for companies that are growing, consolidating, or diversifying in your industry or related industries. Identify the gaps or opportunities that your business can fill or create for them.
- Research your competitors and customers. Find out who are your direct and indirect competitors, and who are your most loyal and profitable customers. Determine how your business can help them achieve their goals or solve their problems.
- Network and communicate. Reach out to your industry contacts, advisors, brokers, or consultants who may have connections or insights into potential buyers. Attend industry events, trade shows, or conferences where you can showcase your business and meet potential buyers. Use social media, blogs, newsletters, or podcasts to share your expertise and achievements and attract attention from potential buyers.
Why You Need a Strategic Buyer for Your Business?
There are many benefits of selling your business to a strategic buyer, such as:
- Higher valuation. A strategic buyer is willing to pay more for your business than a financial buyer, because they can create more value from the acquisition. They may also consider non-financial factors, such as the reputation, culture, or social impact of your business.
- Faster closing. A strategic buyer may have fewer due diligence requirements and less financing constraints than a financial buyer, because they are more familiar with your industry and market. They may also have more urgency and motivation to close the deal quickly.
- Better terms. A strategic buyer may offer more favorable terms for the seller, such as cash payment, less contingencies, or more flexibility on warranties and indemnities. They may also agree to retain some of the existing management and staff, respect the legacy and vision of the founder, or support the ongoing growth and development of the business.
- Greater satisfaction. A strategic buyer may be a better fit for your business than a financial buyer, because they share your vision, values, and goals. They may also have more resources and expertise to take your business to the next level. You may feel more satisfied knowing that your business will continue to thrive and make a positive impact under their ownership.
Tips
- Plan ahead. Start preparing your business for sale at least 12 to 18 months before you intend to exit. This will give you enough time to improve your financial performance, streamline your operations, resolve any legal or regulatory issues, and enhance your market position and reputation.
- Be proactive. Don’t wait for buyers to come to you. Identify and approach potential buyers who may have a strategic interest in your business. Use various channels and methods to communicate and market your business to them. Highlight the benefits and opportunities that your business can offer them.
- Be realistic. Don’t overestimate the value of your business or expect unrealistic terms from the buyer. Be honest and transparent about the strengths and weaknesses of your business. Be flexible and open-minded about the deal structure and conditions. Be willing to compromise and cooperate with the buyer to achieve a win-win outcome.
- Be discreet. Don’t disclose your intention to sell your business to anyone who is not directly involved in the process. This will prevent any unwanted rumors, speculations, or reactions from your employees, customers, suppliers, competitors, or regulators. Maintain confidentiality and trust throughout the process.
- Be professional. Don’t let emotions or personal feelings interfere with your decision-making or negotiation. Treat the buyer with respect and courtesy. Listen to their feedback and concerns. Respond promptly and politely to their requests and inquiries. Follow through on your commitments and obligations.
What Is a Strategic Buyer?
A strategic buyer is a company that acquires another company in the same industry to capture synergies. Synergies are the benefits that result from combining two or more businesses that can enhance their performance, reduce costs, or increase revenues. A strategic buyer believes that the two companies combined will be greater than the sum of their separate individual parts and aims to integrate the purchased entity for long-term value creation.
How Does a Strategic Buyer Work?
A strategic buyer works by identifying and purchasing target companies with assets that strategically fit into their long-term business plans. They may purchase a competitor to reduce or eliminate its competition while combining assets to improve its own outcomes. They may also purchase a company that has access to a new product line, market, or region that the buyer wants to expand into. By purchasing another company to absorb its assets, the strategic buyer can increase its market share, diversify its product portfolio, or extend its geographic reach.
What Is the Global Demand for Strategic Buyers?
The global demand for strategic buyers depends on various factors, such as the industry dynamics, the economic conditions, and the availability of financing. Generally, strategic buyers are more active when the industry is growing, fragmented, or undergoing consolidation. They are also more likely to pursue acquisitions when the economic outlook is favorable, the interest rates are low, and the credit markets are liquid. According to a report by PwC, global mergers and acquisitions (M&A) activity reached $3.6 trillion in 2021, up 37% from 2020, driven by strong demand from strategic buyers across sectors such as technology, healthcare, and consumer goods.
Frequently Asked Questions
How do I find a strategic buyer?
The best way to find a strategic buyer is to hire a professional advisor or broker who has experience and connections in your industry and market. They can help you identify and contact potential buyers, prepare and present your business information, negotiate and structure the deal, and facilitate the closing process.
How do I value my business for a strategic buyer?
The value of your business for a strategic buyer depends on several factors, such as the size and growth potential of your market, the competitive advantage and differentiation of your products or services, the quality and loyalty of your customer base, the strength and stability of your cash flow, and the synergies and opportunities that your business can create for the buyer. You can use various valuation methods, such as discounted cash flow analysis (DCF), comparable company analysis (CCA), or precedent transaction analysis (PTA), to estimate the fair market value of your business. However, the final price will depend on the negotiation between you and the buyer.
How do I negotiate with a strategic buyer?
The negotiation with a strategic buyer involves not only the price but also other aspects of the deal, such as payment terms (cash vs stock), closing conditions (contingencies vs certainty), post-closing arrangements (employment contracts, earn-outs, etc.), and legal protections (warranties, indemnities, etc.). You need to understand the goals and motivations of the buyer, as well as your own priorities and expectations. You also need to be prepared to provide credible and accurate information, demonstrate the value and potential of your business, and address any concerns or objections that the buyer may have. You should also seek professional advice from your lawyer, accountant, or advisor to ensure that the deal is fair and favorable for you.
Reference:
http://hosteddocs.ittoolbox.com/SS030504.pdf
https://archive.org/details/vestedhowpgmcdon0000vita
Essential Topics You Should Be Familiar With:
