Who are the likely buyers?
The two main types of buyers are:
|
01 Strategic Buyer
|
02 Financial Buyer
|
|
What is this?
Strategic buyers are operating companies that are often competitors, suppliers, or customers of your company. Their goal is to integrate your products or services into their existing business to enhance shareholder value. Pros + Can often justify paying the highest valuation because of the synergies they get by owning you + They may have existing management that can step in and allow you to transition out + They can add huge scale to realize the dream of what you've built Cons - "Synergies" usually means firing your employees and moving your operations to their existing locations - Your legacy can evaporate within seconds after selling - Sellers should beware of strategic buyers whose primary motivation is not to acquire you, but to learn about how big you are and how you run your business. |
What is this?
Financial buyers are investment companies such as a private equity firm that is primarily interested in the return they get on the investment, measured by the cash flow you will generate for them while they own you plus the value realized upon selling your company. Pros + When debt is cheap, financial buyers can use a lot of it to justify paying you a higher valuation (i.e., the more debt they use, the less of their own money required to buy you) + Financial buyers may own other operating companies in your market which can lead them to pay a higher price. Cons - The logic of most private equity business models is to buy and sell in 3-4 years, realizing impressive short-term gains that allow fund managers to raise an even larger fund that pays them higher management fees. By managing multiple funds at a time, fund managers can become wealthy on management fees alone, which are generally 2% of assets under management. - As a result, PE owners are incentivized to only make those investments that will payoff before selling the company in a few years. |
03 Our Approach
Pracinco is a team of current and former CEOs. We invest our own capital to build market-leading companies over decades. Learn more about our approach
< BACK TO MENU
< BACK TO MENU