Financial buyers purchase your company’s future stream of profits, so their evaluation of your business’ worth focuses on your profitability and the likelihood of those profits flowing in the future. Since buying your company is probably riskier than putting money in government bonds, a financial buyer will demand a higher return on their investment and will therefore usually make an offer that is within the normal range of prices being paid for businesses like yours.
By contrast, a strategic buyer develops an offer by estimating the value of your company in the hands of the buyer.
The math a strategic acquirer does starts with imagining what would happen if your company were grafted onto its platform.
Companies make strategic acquisitions for many reasons, but there are three key ones.
The difference between a financial and a strategic acquisition is comparable to the difference between buying a new car and investing in a piece of fine art. When you buy a car—similar to a company making a financial acquisition—you go in with a good idea of what it’s worth. You’ve done a search online and have taken a look around and seen what other dealerships are charging for the car, so you go to the negotiation at the dealership armed with enough data that you’re going to end up buying the car for plus or minus 5 percent of what most everyone pays.
When buying a piece of fine art at an auction, however, there is no agreed-upon price for what you’re buying. The price comes down to what it is worth to the people in the audience. At an auction, beauty is indeed in the eye of the beholder, and each attendee decides what the piece of art is worth to him or her.
In summary, working with us, the more likely your business is to be attractive to both financial and strategic acquirers as well as being positioned for a successful family or management transition.