Choosing Between a Financial and Strategic Buyer

By John Carvalho
Published: July 23, 2018 | Last updated: March 21, 2024
Key Takeaways

A handy chart to help you choose between a strategic and a financial buyer.


When it is time to sell your business, it is important to know the merit of different types of buyers who might come to the table. I came across a whitepaper written by Stephen Shaw, a corporate finance profession, that succinctly describes the difference between strategic and financial buyer.


Here is quick snapshot of the white paper:

How you position your
How your company fits into theirs How your company acts as a stand-alone investment
Your demonstration of
industry knowledge
How your company fits into their vision of the industry Imperative and needs to be much more detailed
Your presentation of future vision and growth Already have a growth strategy (reason why they are looking to acquire yours) Need a detailed understanding of how the business model will evolve, M&A capabilities and targets
The timing of your exit from
the company
Typically ends within 6 months to 2 years Continues
The importance of internal
rate of return (IRR)
Not as important Very important (will have a target IRR — typically 25 to 35%)
Control and governance Upon your exit, left in the hands of the acquiring company Day to day decisions are still left to management. Broader strategic decisions left to board/financial buyer
Valuation and proceeds Valuation usually higher than financial. All proceeds are typically paid upfront Valuation typically lower than strategic. Partial sale is typically the norm with owner retaining carried interest thereby participating in future value of business.
Risk and leverage Little to no post-transaction risk Continues post transaction (with added risk of increased leverage)
Deal structure and tax implications Unique structure Tend to be more complex (shareholder agreements, etc.)


Stephen Shaw, CA, is a Senior Vice President and Director and the Regional Corporate Finance Leader in MNP’s Toronto office. The entire white paper can be viewed at "Choosing the Right Buyer". It provides added insight and perspective on this monumental decision in the selling process. Stephen can be reached by email at [email protected].


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Written by John Carvalho | President, Divestopedia Inc.

John Carvalho

John is president and founder of Stone Oak Capital Inc., an M&A advisory firm, as well as a co-founder of Divestopedia. For more than 20 years, John has served his clients on numerous valuation, acquisition and divestiture assignments in a wide variety of industries. John holds the Corporate Finance designation, is a Chartered Business Valuator and a Chartered Accountant. He has made it his life's mission to help entrepreneurs build valuable businesses and Divestopedia serves as an avenue for this cause.

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