What is a Strategic Buyer?
A strategic buyer is a company that purchases another company in order to grow. This is different than a buyer who is looking to buy a company in order to run it. An example of a strategic buying is when Amazon bought Whole Foods. Strategic buyers can be a great fit for owners looking to sell their business.
Why do strategic buyers purchase other companies?
For one, they may be looking to expand their market share by expanding into a new geographical market, also known as customer vertical, or by expanding within an existing market in order to gain market density and saturation. A third reason might be to buy expertise, knowledge, or new technology.
There are two types of strategic buyers.
One type, lights off, is not interested in your expertise, but rather in your customers. They already have an infrastructure with their own staff and departments. Simply put, your company is being displaced. The other type, lights on, wants the owners to remain a part of the company and to help retain its employees. Simply put, they are interested in purchasing a relationship. Business owners need to be knowledgeable and savvy when dealing with a strategic buyer. They need to determine the intentions of the strategic buyer and to inquire about their former acquisitions.
Selling to a “lights on” strategic buyer can be very positive for the seller
It can provide a greater sense of security and strength. It can be easier to be a part of a larger company and small business owners can learn from being part of a larger organization. As the business owner you need to know what the strategic buyer is looking for, i.e. short-term consultative work or working for a period of time and remaining partially invested. If you are looking to retire or start a new venture, a “lights off” strategic buyer might be a good fit for you.
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