Did you know that small businesses have a 70% failure rate after ten years? If your business is coming up to this mark, you might be looking to sell before you fail.
However, there are different options for those looking to boost their business and make money off of it. Finding strategic buyers is one method.
Read on to learn everything you need to know about a strategic buyer.
What Is a Strategic Buyer?
Strategic buyers are companies that acquire other companies within the same industry. A buyer does this because they think the combined companies will be greater than if they were separate, in other words, to capture synergies.
The aim is to create long-term value by integrating the two companies. Because strategic buyers believe the purchased entity will create such value, they often pay a premium price.
How Does Strategic Buying Work?
Strategic buying works to target a competitor company in the same industry. Not always is the target company a competitor though, sometimes a buyer looks for a company in a similar industry.
A strategic buying strategy gets created to expand product lines, add new regions, boost operational efficiencies, or secure more distribution channels.
After acquiring the new company, the combined company will also benefit from synergy. Although it costs a lot to complete this transaction, overlapping costs are eliminated post-acquisition.
Strategic Buyer vs. Financial Buyer
A financial buyer differs from a strategic buyer in that financial buyers want to purchase a business for a small amount. They then hope to make a profit by selling the business later down the line.
A financial buyer will use a new company as an investment as they aim to improve the current business. Once improved, they will look for exit strategies that benefit them.
Finding Strategic Buyers for Your Business
If you think your business could benefit from combining with another, you’ll need to know how to find a strategic buyer. Here are a few tips to follow:
Don’t Attempt to Sell Yourself
The biggest mistake companies make is that they attempt to sell a business on their own and miss obvious strategic buyers. If you don’t feel comfortable sharing information with a competitor, protect your business with redactions.
Think Outside the Box
Remember when we said not all strategic buyers are within your industry or are a competitor? Even though this is the most obvious choice, look for neighboring industries as well.
When you think outside of the box about what you are looking for, you’ll be presented with more opportunities.
When you identify a strategic buyer that you are interested in, ensure they are screened to prove they can execute an accurate sale. These are companies with experienced investment banking teams.
Can Your Business Benefit From Strategic Buyers?
If your business is in a rut and you think selling is your best option, think again. Strategic buyers could be the key to your success.
Find a company that you think could work well with your own. Chances are, you’ll get bought out at a higher price and make more than you would selling the business outright.
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