Who are Financial Buyers?  

 

Generally, a financial buyer purchases businesses strictly based upon financial results and the rate of return that can be generated from the acquisition of your business.  Financial buyers are investors, making an investment grade purchase that will result in guaranteed returns based upon historical evidence.  They are not openly involved with the day to day operations of the business, as they generally take a back seat and let the current management continue operating the business..   Financial buyers will work with management to address certain aspects of the business that are not operating as efficiently and profitably.   

 

In addition to looking for companies that have a solid business model producing expected returns, the financial buyer may also be looking to make an underperforming business that has good assets and potential more profitable…a turnaround opportunity.   

 

For the most part, Financial buyers will want your company to continue to conduct business in the current, profitable manner with little to no changes to the management and operational leadership.   They strictly provide additional capital to the business, using a hands off approach after the acquisition.  This makes sense for the financial investor, as they are interested in maintaining the current integrity of the company that was successful producing profitable results prior to the acquisition.

 

In companies that are truly well run and consistently profitable a financial buyer may be able to use leverage in financing the acquisition.  Depending on the industry and consistency of returns a financial buyer may be able to acquire the business with up to 75% leverage, if the cost of capital remains low this can provide additional returns to the financial buyer.  

 

At some point, many financial buyers will be interested in selling off the acquisition at a higher multiple than what it was originally purchased for.   Again, they are investors, using their capital to make an expected profit that fits their business model.  Financial buyers will hold onto the business for a certain amount of time (maybe 5 years), always with the intention of selling the business for return on their investment.