Strategic Buyers
These are companies that work in the same or similar industries as the seller, and part of their strategy is to grow through M&A. This type of buyer is often the best solution if your company doesn’t have a strong succession plan in place or if you are looking for a full exit. In this case, strategic buyers can be helpful since they have management in place that can take over from day 1.
A strategic buyer could be a great fit also if you are looking to transition out in a short period of time (i.e. 1 year to 2 years). Some of the cons are that the buyer may choose to integrate your company under their brand, which could mean losing your company’s identity and brand recognition. This is not ideal for owners who want their business to continue operating under its original name. On the other side, Strategic buyers typically offer attractive prices, especially when the business aligns well with their growth strategy. This is because they can realize synergies and cost savings by integrating your company into their operations.
Financial Buyers
These can be divided into two main categories: private equity groups and family offices. Private equity groups have a mandate to find strong companies that will guarantee a 3x+ return on their investment. This type of buyer can be the best option if you have a strong management team in place and are looking for a growth partner that can help scale your company, bringing both expertise and capital.
The pros of selling to a private equity group include the option to rollover a significant portion of equity, especially if you are a platform company. This can lead to a strong "second bite of the apple" once the private equity firm exits its investment, typically in 4-5 years. However, cons can arise from the typically short holding period, which makes it difficult for a company to plan long-term strategies, as in 5-6 years, the majority of the business may be owned by a different private equity group with a different vision.
A possible solution could be to align with a family office, as these firms tend to have a more patient investment strategy, and typically adopt longer holding periods. The cons of selling to a family office are that it may take longer to see a return on your rollover equity, as family offices generally don’t have an aggressive buy and build strategy and they typically hold their platforms for a longer period of time.
Finally, depending on the size of your business, wealthy executives or individuals who sold their companies or did well with past investments retire and get bored. They look to get back into business ownership by acquiring and running a good business versus starting one up from scratch. These are often excellent buyers and are great if you’re looking to hand the keys over to someone day to day, should you not have a strong bench in place. It’s important that individual buyers really understand the culture of your business and they bring complimentary skills and experiences to your business to be most successful. The downside is that they typically are conservative regarding the price they pay.
Conclusion
The choice between a strategic or financial buyer ultimately depends on your long-term goals. Are you looking for a clean exit and to step away quickly? A strategic buyer might be the best choice. Do you want to stay involved, retain some equity, and help grow the business further? A financial buyer could be a better fit, especially a private equity firm or family office with the right resources.
Business Acquisition & Merger Associates (www.buysellyourbusiness.com), a Charlotte, NC advisory firm, assists business owners in growth recapitalizations, business transfers to financial or strategic buyers, and management buyouts. BAMA also helps companies grow by providing buy-side sourcing services that identify potential add-on acquisitions to expand geographic footprint or add strategic products and capabilities.