Strategic Buyer
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Strategic Buyer- is a type of acquirer who is in the same industry as the target company. Unlike a financial buyer, a strategic buyer looks for businesses that can be quickly integrated with its main operations. Typically, a strategic buyer is a competitor in the industry, though not necessarily a direct competitor. It is understood that a strategic buyer operates in the same industry, but may not provide exactly the same services. A strategic buyer may provide similar services, but not necessarily for the same group of customers. May provide similar services to a similar group of customers, but it will do so in a different geographical location. These strategic buyer motives are what essentially makes them a strategic buyer[1].
Goal of strategic buyer
The goal of a strategic buyer who is a competitor may be:
- gain insight into your business model,
- obtaining customer lists,
- identify key poaching employees and inform existing customers that they can no longer rely on you.
The most common business strategies used by strategic buyers
The buyer usually uses a business strategy[2]:
- adds to a service or product mix - each of these two companies has a menu of products that they sell or services that they offer to their customers. A joint strategic maneuver would be to take over a company that offers services or sells products that are complementary but different from the products or services they currently offer. This gives the company taking over a new product or service line and the possibility of cross-selling. Cross-selling refers to the ability to sell goods or services of a newly acquired company to the customers of the acquiring company, and if the acquiring company has any goods or services that are not currently provided by the target company, the opportunity to sell the goods or services of the acquiring company to the customers or customers of the target company . Cross-selling is one of those concepts that works better in theory than in practice.
- adds or changes the customer Mix-Each company has a list of customers and when assessing the profitability of connection transactions, the more customer lists are overlapped, the less attractive is business consolidation
- adds to the company's geographical sphere of influence. If the company operates regionally in the northeast and has achieved significant market penetration in this area, the initial increase in market share may be more difficult and more expensive to get. Expansion into new markets may be a viable solution to ensure continuous development, but growing your business from scratch in a new market is daunting, risky and expensive. Therefore, taking over a successful business in another region of the country is an attractive alternative.
A potential buyer who is also a competitor may be a great strategy, but in fact, he may be more interested in what he can learn about your business than have any real interest in buying it[3].
Strategic buyers often focus their acquisition activities on companies that are appropriate for their current (or future) strategic plans, often buying from companies. Strategic buyers are often the final buyer after the acquisition by PE. PE companies may be more likely to get their hands dirty than strategic buyers, i.e. a PE company may want to contract with some moving parts, replace management, repairs, add other acquisitions, etc. After a PE company develops a company portfolio, a strategic buyer may be very interested in taking over. Most of the hard work, such as transforming an entrepreneurial company into a professionally managed company has been done by the PE, and the strategic buyer recognizes and pays for this value.
Strategic buyers pay more for companies for several reasons
Here are some reasons[4]:
- they need specific pieces for their puzzle. As the name suggests, "a strategic acquisition is precise that a buyer buys a company that has an important strategic fit. So the buyer may be willing to pay a premium for keeping a valuable company in the hands of a competitor.
- they are often not subject to the same restrictions as PE companies. Investors in PE companies agree to invest only when certain parameters are part of the transaction; not paying for a portfolio is often part of the EP's mandate. Strategic buyers have more freedom to spend everything necessary to get what they needed.
- they may be looking for long-term investment. Strategies Buyers may be willing to pay a higher price because their strategy is to buy and maintain long-term. They do not want to get a return on investment that wants to get a return on the lowest cash from the business of the acquired company.
Strategic buyers are a great potential opportunity when they are motivated to buy, but they also pose a huge risk when you open your door to them. You must remember to enter into a confidentiality agreement and exercise extreme caution. One strategic buyer is good; two strategic buyers will turn your sales into a competitive auction[5].
References
- Filippell M., (2010), Mergers and Acquisitions Playbook: Lessons from the Middle-Market Trenches Tom 3 z Wiley Professional Advisory Services, John Wiley & Sons
- Grebey J., (2018), Moving On: Getting the Most from the Sale of Your Small Business, Walter de Gruyter GmbH & Co KG
- Grover B., (2005), The Acquisitive Distributor: 4 Keys to Success when Buying a Wholesale Distribution Business, NAW
- Malino N., (2008), It Takes Two... How to Sell Your Company to an Institutional Buyer, Lulu.com
- Snow B., (2011), Mergers and Acquisitions For Dummies, John Wiley & Sons
- Sudarsanam S, (2003), Creating Value from Mergers and Acquisitions: The Challenges : an Integrated and International Perspective,Pearson Education
Footnotes
Author: Klaudia Kazienko
