BUYER PROFILES – Part II
In buyer classifications, there also exists a somewhat rare species known as the turnaround specialist. This buyer is usually an experienced consultant looking for a bargain or diamond in the rough that he can transform from an under performing business to a profitable status. This type of buyer usually concentrates in the larger or mid market arenas where deals have the resources to justify his time. Smaller business offerings generally are not of interest to these buyers because of limited operational scope and lack of customer base. For similar reasons, most intermediaries will not work with companies that are in trouble in the small arena.
This is typically an individual with substantial financial resources and the type of background or experience necessary for leading a particular operation. The individual buyer usually seeks a business that is financially healthy and will yield a sound return on the investment of both money and time. If these buyers do not have the amount of personal equity required for acquisition, they most likely will turn to family members or lending institutions for financing. Buyers and sellers should be aware that, in many cases, seller financing will be an essential element, benefiting both parties in the long run. Even when such sources are available, the individual buyer will require a strong bottom line when it comes to price. Therefore, these buyers will usually limit themselves to transactions that are highly leveraged.
The Strategic Buyer
This buyer type is almost always a company having as its goal entry into new markets, increasing market share, gaining new technology, or eliminating some element of competition. In essence, it is part of the buyer’s strategy to acquire other businesses as part of a long-term plan. Strategic buyers can be either in the same business as the company under consideration or a competitor. Example: a bank in one part of a state purchases or merges with one in another part of the same state. The acquiring bank enters a new market and reduces competition at the same time. Strategic buyers will be looking chiefly at businesses with sales over $1 million, with a proprietary product and/or unique market share, and effective management in place that is willing to remain.
The Synergistic Buyer
The synergistic category of buyer, like the strategic type, is usually a company. The difference is that with this buyer, the acquisition or merger flows from the complementary nature of the purchasing company and the company for sale. Synergy means that the joining of the two companies will produce more, or be worth more, than just the sum of their parts. Example: a large real estate company purchases a mortgage company. It can now use its existing customers (those who buy homes) and offer them the mortgage funds to finance their purchases. The benefits of this type of acquisition help both companies be more competitive and profitable.
The acquisition market can be compared to a rifle range. There are many different shooters at any one time, but they are concentrated on their own targets. The more knowledgeable buyers are about their competition, the better focused they are on their own target.
Vantarakis, Alexander and Whitehurst, William. ENTRANCE.