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TYPE OF BUYERS FOR PRIVATELY HELD COMPANIES

When you plan to sell your business, your one of the questions will certainly be, “Who will buy my business?”

If you are not intending to pass your business in the hands of your family members, there are four type of buyers for your business. The type of acquirer has following characteristics:

1. Strategic Buyer

  • Typically a large firm including a Public Company
  • Accustomed to long term business planning
  • Economic considerations are evaluated; however, reason for acquisition is not always purely economic.
  • Acquisition is based on factors such as introducing new markets.
  • Offering a wider range of services and/or products.
  • Gain larger market share.
  • Improving company growth.

2. Corporate or Sophisticated Acquirer

  • Typically comes from a large company background
  • Employs “schooled” approach when determining value
  • In most cases a high net worth individual, a group of individuals, an investor group, or a small Corporation
  • Focuses on current and future, rather than past business performance.
  • Places primary emphasis on capitalization of earnings, and on the ability to finance and leverage a purchase.

3. Financial or Lifestyle Buyer

  • Usually an individual.
  • Primary focus on income replacement and the opportunity to build equity.
  • Major emphasis placed on historic and current business conditions.
  • Case for case, the perception of risk is likely to be higher than that of the strategic or corporate style acquirer.

4. Industry Buyer

  • Usually from within the same industry as the company.
  • Place heavy reliance on a business’ fixed assets.
  • The buyer presumes that they will bring virtually all other value to the enterprise.

 Note: The business value is addressed from the varying perspectives of these type of buyers.

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