In last month’s article, we discussed Financial Buyers/Private Equity Groups (“PEGs”) and how they work. As a quick recap, PEGs are investor groups formed with the purpose of making acquisitions of privately held companies which the PEG will eventually sell to achieve its (expected) return on investment.
Strategic acquirers are businesses who are already in your industry. Often times, strategic acquirers are owned by PEGs (we call these companies “hybrids.”) For example, Clover, which is owned by Golden Gate Capital, is a strategic acquirer owned by a PEG.
Generally speaking, if you want to exit your business immediately upon a sale, a PEG is probably not the right option for you. Conversely, if you are too young or energetic to retire and/or you want some help “professionalizing” and “growing” your business, a strategic buyer may not be right for you.
What are the differences between PEGs and Strategic buyers? This is not a “one-size-fits all” proposition. Some business owners would rather sell to strategic buyers while others will only be comfortable working with PEGs. Based upon an owner’s specific goals and objectives, as well as some characteristics of his/her company, one type of buyer may be more appropriate than another.
To help you understand the differences, we put together the following chart which covers many of the topics salient to business owners as they ponder the best buyer for their business. Of course, the chart is not all-inclusive and certain explanations are necessarily brief.
There are many, many other topics we could discuss when comparing/contrasting strategic vs financial buyers (due diligence, timing of a transaction, customer concentration, employee benefits, management incentives, etc.). We are happy to answer your questions directly about these topics or any others you may have.
Suffice it to say, if you are considering your exit options, you should be aware of the differences between buyer types and determine which is best for you.
In next month’s article, we’ll begin to explore how to determine the market value of your business.
