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Private equity or strategic buyer?

Who will be your buyer: private equity or a strategic buyer?

When it comes to company takeovers, private equity parties and strategic parties have different motivations and strategies. The private equity parties manage a hefty bag of money, but strategic parties can be highly motivated by synergy benefits. Private equity parties are often very picky about the type of companies that they wish to acquire. The company must meet numerous investment criteria before they will enter into negotiations. If you want to sell your company, what is the difference between the two?

Financing

The first difference between these two parties is in the financing. Private equity parties raise their money through shareholders or bank financing. They must be able to justify their investments to them. This means that they are therefore more constrained than a strategic party. However, this will not directly have an effect on the price that both parties pay.

due diligence

Through specific market knowledge, strategic parties have a quicker overview of what a particular company has to offer. Private equity often takes longer with their due diligence. They look at the total company value, external growth opportunities, cash flows and exit possibilities. A strategic buyer focuses primarily on potential synergies. The due diligence is often an intensive process and requires a lot of attention from the management team. This should be taken into account when working with a private equity party.

Negotiating

Private equity parties tend to negotiate more often than strategic buyers. This experience makes it easier for them to close a deal. However, the less extensive due diligence of a strategic party also results in fewer stumbling blocks in the negotiations. Private equity parties will be more likely to use minor inconsistencies to arrive at a lower valuation and bid.

Value creation

A strategic buyer wants to fully integrate the acquired company in order to use the maximum synergy benefits. This is not always successful due to cultural differences, for example. Private equity parties usually allow the company to operate on a stand-alone basis. However, the company is continuously monitored, and in combination with the experience, the company is guided towards maximum value creation. They do need the current back office for this. In the case of a private equity party, ensure that this is in order. With a strategic party, the back office is of less importance. Since this will be taken over by the back office of the strategic party.

Long term

A strategic buyer is not concerned with preparing an exit after the purchase of a company, while private equity is. They want to achieve a good return in the short term. After all, this is what the shareholders expect; they can still sell the company to a strategic party.

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Marieke Klaassen
Marieke Klaassen van BeurdenSenior Corporate Finance Advisor

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