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:


STRATEGIC BUYERSFINANCIAL BUYERS
How you position your
company
How your company fits into theirsHow your company acts as a stand-alone investment
Your demonstration of
industry knowledge
How your company fits into their vision of the industryImperative and needs to be much more detailed
Your presentation of future vision and growthAlready 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 yearsContinues
The importance of internal
rate of return (IRR)
Not as importantVery important (will have a target IRR — typically 25 to 35%)
Control and governanceUpon your exit, left in the hands of the acquiring companyDay to day decisions are still left to management. Broader strategic decisions left to board/financial buyer
Valuation and proceedsValuation usually higher than financial. All proceeds are typically paid upfrontValuation typically lower than strategic. Partial sale is typically the norm with owner retaining carried interest thereby participating in future value of business.
Risk and leverageLittle to no post-transaction riskContinues post transaction (with added risk of increased leverage)
Deal structure and tax implicationsUnique structureTend 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 stephen.shaw@mnp.ca.