Today’s Business Buyer: A Profile
In one of the previous articles, we rated today’s business buyers and in this column, we will take a closer look at their profile, motivation to buy and even long-term strategy. Today’s diverse marketplace attracts buyers from all walks of life. While smaller businesses are usually purchased by buyers looking for a replacement of their lost job or alternative to corporate life, mid-sized and large businesses tend to be acquired by private investment companies that build businesses and sell them for profit. By reading the below distinctions, you will be able to better understand who your potential buyer might be and why they are interested in purchasing your company.
Individual buyers are typically experienced individuals with substantial resources. They seek out healthy, profitable businesses with a sound return on the investment. Individual buyers with less financial resources on their hands can turn to their family members or venture capital sources for financing and seller financing will be likely required. In either way, there is a cap to what an individual buyer can afford and will pay, so sellers need to be prepared for that.
As the name suggest, a strategic buyer seeks to buy a business for a strategic reason, be it entering new markets, increasing market share, eliminating competition or gaining new technology. In most cases, this buyer is a company and acquiring the other company fits their strategic plan. Unlike the previous buyer type, strategic buyers can afford to pay much more money for businesses and is in their interest to keep the management of the acquired company intact and effective.
Likewise, a synergistic buyer tends to be represented by a company. While the previous type of merger can be more aggressive, synergistic acquisition flows solely from the complementary nature of the purchasing company and the company for sale. In essence, merging the two companies will result in producing or being worth more.
Industry buyer is a buyer that that is more often than not a competitor or a highly similar operation. Since the two companies operate in the same industry, this buyer looks beyond the know-how and predominantly acquires another company for the following reasons – combining manufacturing facilities, consolidating overhead and utilising the combined sales forces. Due to the above reasons, their ideas of the bottom line price tend to undercut the asking price of the seller, which explains why they are also known as the “last resort buyers.”
Similarly, as the name implies, a financial buyer is a buyer interested in making as much profit as they can from buying another company. They tend to heavily rely on debt and financing and try to minimise the use of their own capital.