Different Types of Buyers
BCMS Corporate engages several different types of buyers when we take a company to market. Typically we identify strategic companies and private equity groups, but we do also come across individual investors. These three different types of buyers evaluate a business using different objectives and experience. Understanding the motivations of each group will assist owners in finding the right home for their particular business. Beyond this, there are many ways to value a business and even further, to structure a deal.
Strategic companies become potential acquirers due to synergies between their operation and the acquisition target company. Acquiring companies is one form of growth strategy by which a company can gain market share, gain additional product lines, diversify their service offerings, and expand into new geographies, including the international marketplace. A privately owned business being acquired by a strategic company will benefit tremendously from the larger infrastructure, including management, finance, economies of scale, supplier and customer relationships, sales and marketing, etc.
Private Equity Groups
These groups represent pools of capital raised through high net worth individuals, family trusts, corporate and government pensions, and university endowments as examples for the purpose of investing in and/or purchasing privately held businesses. The interest of different PE firms varies widely, across industry segments, geography, etc. Equity groups purchase companies as either platform investments or bolt-on acquisitions. Platform investments operate on a stand-alone basis, while the financial performance of the company affects the overall return of the specific fund which was used to purchase it. Bolt-on acquisitions are strategic investments for a company in a fund’s existing portfolio. In either event, the key focus of a private equity group is to maximize the greatest financial return for its investor pool over a defined period of time.
High net worth individuals often seek to be the owner and leader of a company. An individual buyer usually seeks to play an active, hands-on role in managing the business and may have specific industry experience, either from a career in the corporate world or via other entrepreneurial ventures, as the basis for their interest in a particular business or sector. This buyer type oftentimes looks for opportunities that are situated nearby their place of residence.