Strategic Buyer

A strategic buyer is a company that acquires another company for business reasons. It wants, for example, to gain new products, customers, or markets or realise synergies. Unlike a financial investor, it pursues a long-term operational interest. That is precisely where the main difference in pricing arises: because a strategic buyer can realise cost and revenue synergies with its own business, its decision value regularly exceeds that of an investor who must value the company on a stand-alone basis. How much of that it actually passes on in the price depends on competition in the process.

Practical disadvantages stand against this. Internal decision-making is often slower and requires board approvals, diligence is more thorough because the target is to be integrated, and where competitors are bidding, competition law questions arise both for clearance and for the exchange of information in the data room, which must run through a ring-fenced clean team. For the seller such a buyer also usually means the end of the company's independence, because brand, sites and structures are absorbed into the acquirer. For employees and management that is a material difference from a sale to a financial sponsor.

In auctions the two groups therefore compete with different strengths. For the seller, a strategic buyer's higher potential price has to be weighed against higher completion risk and a longer period to closing.