Who will buy your business – a strategic or financial buyer?

If you’re looking to sell your business, you might not consider that the buyer’s identity is important to you. Business buyers come in many forms, and there may be a category of buyer that is a better fit for your business and will yield you the highest price.

Buyers are generally separated into two types, financial and strategic. A financial buyer typically provides capital to the transaction but lacks specific industry and operational knowledge. This buyer type can be characterized as an investor, not an owner operator. Financial buyers base their purchase price on a multiple of cash flow or earnings that is sourced from an industry rule of thumb and they are focused on getting a return on their investor’s money. This group commonly take great interest in a business’ infrastructure (IT, Human Resources, Accounting) as the business will continue to lean on these people and systems post sale. Also, financial buyers tend to have a shorter ownership period as their goal is to turn a profit and move on to the next opportunity.

Alternatively, a strategic buyer wants your business for the resulting benefit to their business. They see value in elements of your business such as a compatible product line, sophisticated technology, geographic reach, prestigious customers, key employees or a recognizable brand name. A strategic buyer can be your direct competitor or even a vendor or customer connected to you through a supply chain. This type of buyer may even have specialized knowledge about your market or product that will add value to the transaction and reduce the reliance on you to transition the business. Buyers in this category are focused on long-term growth versus turning a quick profit.

Strategic buyers seek out acquisitions that provide a reduction in costs or increasing revenues. The acquisition has a twofold advantage – new profit from the acquired business and increased revenues or decreased costs to an existing business. For this reason, this buyer category may be more willing to pay a premium price, but that doesn’t mean that they don’t want the financial sale price. Ultimately a higher strategic sale price is achieved when there are multiple bidders and the business has strategic assets that cannot be easily replicated.

Depending on the state of your business and the market at the time of sale, you may choose to target one type of buyer or the other or change certain things in your business in order to make it more attractive to a specific buyer type. For example, if you would prefer to not transition the business or lack a strong management team then a strategic buyer may be a great fit with their industry knowledge and operations that could be combined. Many times it makes sense to include all types of buyers in the sale process, especially since experienced professionals can intelligently pair buyers and their strengths for maximum results. Options are powerful when it comes to transitioning a business.

At Bridgepoint we take the time to profile and seek out the right buyer for your business. We create a comprehensive list of strategic buyers for every business for sale opportunity and actively pursue these prospects. This is complimented with our database of individual and financial buyers waiting for opportunities that match their criteria. This allows us to pair financial buyers with experienced operational buyers that have no financial backing, matchmaking that leads to closed deals. This approach yields maximum results for our clients and is key to attracting multiple bidders and ultimately a higher price.

If you would like more information on what it’s like to sell a business, or a more in depth discussion on how Bridgepoint can help find a qualified buyer for your business, please  Contact Us online.