Whether you've been actively looking for a buyer for your business, or you find yourself considering an unexpected inbound offer, the quest for the right buyer can be complicated, with many aspects to consider.

One of the major things to consider during a transaction is the difference between private equity buyers and strategic corporate acquirers. Private equity buyers--or "financial buyers"--buy a stake in the company or take full ownership, typically with the goal of increasing the value of the business over a few years and selling it again. In contrast, a strategic corporate buyer often will acquire and absorb a business into its own, but that isn't always the case.

Yet this distinction may be less important than you think, says Bob Baltimore, a managing director at Harris Williams & Co., a leading global investment bank focused on M&A. Instead, the most important things are setting clear goals, having an accurate idea of your options, and maintaining an open mind.

Get Goal Oriented

"At the beginning of the M&A process, the conversation should start with goal-setting," says Baltimore. That's not just thinking about the future of your business, but also for your family, and of course, yourself. What results do you hope to achieve with your transaction? Naturally, the amount of money you'll receive is top of mind, but there are a number of other objectives to contemplate. Among other considerations, these considerations will help you and your advisor customize the M&A process to meet your goals-whether it's a bespoke process with only a few potential buyers involved or something more broad, you'll want to set clear goals at the onset.

Key questions to consider:

  • What are your overall goals for the company? Are you hoping to make a strategic expansion into a different market, for example?
  • How do you anticipate the transaction will affect your employees?
  • What's your ideal outcome for your executive team?
  • What are your personal career and lifestyle goals? Do you want to transition out of your company as part of a transaction or continue on as a member of the team?

Know Your Options

Private equity has evolved in recent years, and the differences between these groups and strategic corporate buyers have become more complex and nuanced. 

One outdated misconception is that a private equity group cannot match the valuation for your business that you would receive from a corporate strategic buyer. In reality, today's private equity groups realize they need to compete with strategic buyers, and have developed their own investment angles that enable them to stretch further on price.

In addition, private equity groups are bringing more industry-specific know-how to the table than before. "At one time, many private equity groups were generalists, but that's not the case anymore," says Baltimore.  As the number of private equity deals has soared in the past decade, "in order to be a great investor in a space, private equity groups have focused on select industries to better underwrite potential transactions," he adds. "That enables them to be a more impactful partner." 

Finally, recent years have seen the rise of "family offices," investors that manage the wealth of a single family or multiple families. "These can look and feel a lot like financial buyers, but they can hold a business forever," explains Baltimore. This type of financial investor isn't necessarily looking for a re-sale, he says, which changes their approach and their calculations. Family offices can be a good option for sellers looking for an alternative to traditional private equity and strategic buyers.

Strategic buyers have evolved as well. For instance, it's no longer standard practice to absorb your corporate culture into their own, losing the elements that made yours a unique business along the way. While there are still some strategic buyers that take that approach, many have realized that part of what they are purchasing is your company's unique culture. While that doesn't mean your company won't experience personnel changes, "there are great strategic buyers that are really sensitive to cultural issues, making sure that culture stays intact over time, and offering employees a good new home," says Baltimore.

Maintain an Open Mind

The reality is that the broad category your potential suitor fits into--whether a financial buyer or a strategic buyer--doesn't tell you as much as it once did about what type of a buyer they'll be, and how they'll behave as a future steward of your company. "Buyers are all made up of individuals, personalities, and their own cultures," explains Baltimore.

What's more, it generally doesn't affect the basic type of preparation you'll need to get ready for a transaction: gathering the data and metrics to substantiate your company's growth story, for instance, is a similar process no matter which type of buyer you ultimately close a deal with.

Especially in the early days, remain open to both types of buyers. Seek advice from the experts who know your industry's space. A good advisor will know your field intimately, have a substantial track record in dealing with companies in your field, and be able to guide you toward the right buyer with the right personality, with objectives that match your business and your goals. 

Published on: Apr 2, 2018