For mid-market business owners contemplating a sale, selecting the right buyer is one of the most critical choices in the selling process. Two common types of buyers are private equity (PE) firms and strategic acquirers, each with their distinct motivations, methods, and advantages.
Of course, selling a business is a personal as well as financial decision for business owners and there will be many different aspects to the decision-making process when the time comes. Choosing the right buyer is one element of the sale that can shape the future of your business in significant ways. Understanding the benefits of each buyer type can empower sellers to secure deals that align with their goals and vision for the future.
Understanding Private Equity buyers
Private equity firms primarily seek profitable investments. They aim to acquire companies, enhance their value through various growth strategies, and eventually sell them for a higher return. PE firms typically have a finite investment horizon, often between 5-7 years, during which they focus on maximising the target company’s market value.
Why choose a Private Equity buyer for your business?
Access to capital and growth expertise: Private equity firms bring capital and strategic expertise to fuel growth initiatives, often focusing on scaling operations, increasing efficiency, or expanding market reach. For mid-market companies looking to expand rapidly, this can be a major advantage, as PE buyers are highly motivated to help the business realise its potential.
Retention of existing management: Although not always the case, PE buyers often prefer keeping the current management team in place to leverage their expertise and maintain operational continuity. This arrangement can be beneficial for sellers who want to remain actively involved post-transaction and ensure the business’s cultural and operational stability.
Opportunities for future investment: PE acquisitions often involve a form of rollover equity, where sellers retain a minority stake in the business. This setup allows founders or owners to benefit from future growth and increased value generated by the private equity partnership, creating an opportunity for additional financial returns.
Transformational business enhancements: Because PE firms actively work to increase value, they implement performance-enhancing practices, cost efficiencies, and governance structures that can yield long-term benefits. Their focus on optimising business operations often results in stronger market positioning and improved financial performance.
Strategic exit planning: PE firms have a clear growth strategy that aligns with market trends, enabling businesses to reach a stage where they can be sold at a higher valuation. This structured approach to scaling and exit planning ensures that the business remains competitive and attractive in the long run.
Understanding Strategic Acquirers
Strategic acquirers are often companies within the same or related industry. They will acquire a business to gain new capabilities, access additional markets, or enhance operational efficiency. Their objective is to integrate the acquired company to strengthen their competitive position and achieve synergies.
Why choose a strategic acquirer for your business?
Maximising business valuation: Strategic buyers may offer a higher valuation for a business if they foresee strong synergies, such as reducing duplicated costs, expanding customer bases, or leveraging shared resources. This can make selling to a strategic buyer financially attractive for the seller.
Long-term stability and investment: Strategic acquirers typically have a long-term investment horizon as they seek to integrate and operate the acquired company indefinitely. This commitment provides stability and a sustainable future for a business, ensuring it remains a key player in the industry.
Leveraging industry expertise and infrastructure: Strategic acquirers often possess extensive resources and established infrastructure that the acquired business can leverage. This support enhances operational capabilities, reduces costs, and opens up new growth opportunities that might be difficult to achieve independently.
Enhanced market positioning: By joining forces with a strategic acquirer, businesses gain a competitive edge through expanded market access, increased product offerings, and stronger customer relationships. This integration creates long-term benefits for both employees and stakeholders.
Making the Right Choice for Your Business
As explained, the decision to sell your business is a very personal one and choosing the right buyer depends on your priorities – whether maximising valuation, ensuring long-term stability for the business and employees, accessing growth resources, or preserving your business legacy. As with all aspects of the transaction, sellers should thoroughly evaluate each option and identify the best fit for their vision.
Working with experienced business advisers when planning your exit strategy will be invaluable in helping you assess these considerations. When you are ready to plan your business sale, choose advisers that will help you navigate the complexities of the process and will identify potential buyers whose objectives align closely with your own, ensuring a transaction that benefits both parties in the longer term.
The right buyer will not only bring financial resources but also share a vision that aligns with your goals and values, providing an optimal pathway for growth, continuity, and success.
Contact Altius Corporate Finance today to see how we can help you in your next business exit or acquisition. ACF is a part of Altius Group.
