Strategic Buyers

What is a Strategic Buyer?

A "strategic buyer" refers to a company that acquires competing or complementary companies to grow their own business, for example by increasing their customer base, acquiring IP, or expanding into new territories.

Selling your business to a Strategic Buyer

Business Types

Every business has competitors, so if your business is profitable you likely are already hearing from competitors and may even have acquisition offers from them. Like PEGs, larger competitors may pursue a roll-up strategy where they acquire many small competitors and roll it into a single organization.

Price

For service-based businesses with no intellectual property, strategic buyers are very thrifty buyers. If your business is worth $10M on the market, a strategic buyer will always have the option to invest $10M back into their own business instead of acquiring yours.

If the business has assets that are difficult to copy like intellectual property, brand recognition, or network effects, strategic buyers are sometimes willing to pay more than 10x earnings if they see a clear path to ROI by acquiring these hard-to-reproduce assets.

Time-to-Close

Strategic buyers can move very quickly to close a deal, particularly if they are significantly larger than your business. Unlike acquisition entrepreneurs and private equity funds, strategic buyers have full discretion over the allocation of their funds and require only management approval. Larger organizations will have entire teams dedicated to M&A.

Post-Transition

Unlike acquisition entrepreneurs or PEGs , strategic buyers my not require you to stay on for some number of months to facilitate the transaction, because they already have expertise on running your business. The flip side is that they may have very different opinions on how the business should be run, including which employees are critical and which ones are redundant.

Questions to ask a strategic buyer

• What was the last acquisition you made, and what role does that company's products and employees play in the company today?

Conclusion

Selling your business to a strategic buyer can be a great option if want to step away from your business as quickly as possible.

Alternatively, if you're looking to close quickly while still getting the best price for your business, Dealwise has the largest network of buyers looking to deploy capital to acquire small businesses across the US and Canada. Contact us below to get a free valuation and learn what your business could sell for in today's market.

The content of this article is not financial or investment advice and should be taken as such.