And Distinct Types Of Acquisition Strategies?
Analyzing your buyer type and buying parameters can aid in focusing on acquisitions suited to your needs and buying capabilities. Knowing your acquisition strategy, allows you to focus on each deal more confidently, concentrating on offerings you are best positioned to acquire.
The Employed Corporate Executive
The most common buyer in a small business acquisition is the corporate executive. An employed corporate executive, as the income stream, to wait for the opportunity to acquire an “ideal” business. The employed corporate executive buyer may slow the buying process by over analyzing the deal, anxious about giving up the security of a corporate position for the uncertainty of being a business owner.
The Displaced Executive
A displaced executive is often the most motivated buyer type; ready to act and quick to meet with intermediaries and sellers. Like the employed executive, the displaced executive tends to overanalyze deals, bogging themselves down with analysis and ratios. Often acquisition opportunities are lost to more sophisticated buyers because of their inexperience.
Former Business Owners
Former business owners represent tough competition for the executive or displaced executive. More experienced and knowing what to analyze, they quickly come to the buying decision and have banking connections for loans and lines of credit. From the intermediary’s perspective, former business owners tend to be choosy, passing up deals because they can, and may not see the value in acquiring an existing business over starting their own.
Buyer groups come in all shapes and sizes have an advantage of pooling assets, for more working capital, thus enabling larger purchases. Looking for a rate of return on investment, buying groups may want to operate as absentee owners, putting the seller in a good position to stay on as an employee or consultant. Other buying groups bring in their own infrastructure to run the business themselves.
The turnaround specialist is rare and classified as an experienced consultant focused on large to midmarket underperforming businesses with enough resources to justify his time in transforming them to a profitable status. Turnaround specialist and most intermediaries will not work with small arena companies that have limited operational scope, no customer base, and are in financial trouble.
An individual buyer has substantial financial resources and experience in a familiar operation. The individual buyer looks for a financially healthy business that will yield a sound return on the investment of both money and time. In many of these cases, seller financing is an essential element in the acquisition, and in the long run, benefits both parties. The individual buyer will require a strong bottom line when it comes to acquisition price and will usually limit themselves to transactions that are highly leveraged.
The Strategic Buyer
This strategic buyer is most often a company whose long-term plan is to enter new markets, increase market share, gain new technology, or eliminate competition. Strategic buyers look at businesses with sales over $1 million, a proprietary product and/or unique market share, and an effective management that is willing to remain in place.
The Synergistic Buyer
The synergistic buyer, like the strategic type, is usually a company. The Synergistic buyer looks to acquire two companies, that together will produce more or be worth more than they are separately. This acquisition type is successful merging companies, making them 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