The Strategic Buyer
Brokers Law
The Strategic Buyer
Strategic Buyers are Buyers that are looking to obtain synergies and economies of scale by investing in businesses that are complementary to their existing businesses. The tactical investor may also be the market leader in a segment and wants to protect their leadership by acquiring assets/competitors to strengthen their position. They may also be the up and coming group looking to take market share by acquiring competitive businesses.
Strategic Buyers can be Buyers that have a goal to increase their market share or to leverage their existing talents and asset base. A Car Dealership that begins to acquire other Car Dealerships is an example of a Buyer with a goal to increase the Market Share. This could be under the same or a different flagship. This type of buyer already has systems in place, for example, financing and banking relationships, parts suppliers, etc. that can become more efficient by adding new product lines.
Strategic Integration Types
Strategic Buyers can be Buyers that are vertically integrating their business. A manufacturer that uses significant amounts of processed steel could purchase a steel processing business to vertically integrate. A plastic plant pot manufacturer purchasing a subcontract molder is an example of vertically integrating your business. An Italian restaurant chain that purchases a fresh pasta maker is another example of vertical integration.
Strategic Buyers can also be Horizontally integrated. Horizontal Integration occurs when a business buys a business in a related industry or in an industry where there may be synergies with their suppliers or their customers. A successful medical insurance business might look at a life or auto insurance business as horizontally integrating. Horizontal Integration can take advantage of your existing customer network without cannibalizing your existing business. Horizontal Integration would be when an ear nose & throat medical practice merges with or acquires an orthopedic practice-both practices utilizing similar insurance companies and processes and economies of scale will result.
Why do Strategic Buyers matter?
Strategic Buyers matter because often they are already familiar with your industry so they have an existing comfort level. These Buyers already operate businesses (usually successfully if they are expanding) and have the resources and familiarity with your industry which can translate into a faster closing. Additionally, the synergies and management leveraging that become possible allow Strategic Buyers to pay a higher price than a non-strategic buyer and still obtain equal or greater returns. A horizontally integrating strategic buyer could, for example, have one purchasing manager that works for both companies, and have a Human Resources department that serves both companies. Operational efficiencies of scaling present the strategic investor with increased margin dollars per unit of sale, a key aspect of their business model.
Strategic Buyers matter because they can move fast and have the familiarity and resources to close quickly often for a higher price than non-strategic buyers.