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Mergers and acquisitions (M&A) are a common occurrence in businesses today. When it comes to M&A, there are typically two types of buyers - financial buyers and strategic buyers. In this blog, we will specifically focus on strategic buyers. We will discuss what a strategic buyer is, how they differ from financial buyers, and the advantages and disadvantages of being a strategic buyer.
A strategic buyer, also known as a strategic acquirer, is a company that acquires another company for strategic reasons. Strategic buyers acquire other companies to add capabilities, products, or services to their existing business. Additionally, they aim to increase their market share, expand geographically, or diversify their portfolio. The primary motive of a strategic buyer is to create synergy between the acquired company and their existing business.
In contrast, financial buyers, also known as private equity firms, acquire companies with the aim of gaining a return on investment through the eventual sale or initial public offering (IPO) of the acquired company. Financial buyers are less focused on the strategic benefits of acquiring a company and more focused on the financial gains.
One of the main advantages of being a strategic buyer is the ability to achieve significant synergies between the acquired company and the existing business. These synergies could arise from cost savings through shared resources and increased purchasing power. Additionally, strategic buyers can benefit from cross-selling opportunities, access to new markets, and economies of scale.
However, there are some disadvantages to being a strategic buyer. For example, there is a high level of management and coordination required to integrate the two companies effectively. Additionally, the potential cultural and managerial differences between the acquiring and acquired companies can cause conflict and operational difficulties. Finally, strategic buyers may become too focused on integration and lose sight of their core business objectives.
It is essential for a strategic buyer to undertake due diligence when acquiring a company. This process includes a detailed analysis of the target company's financial and operational performance, potential inherent risks, and legal considerations. Due diligence helps a strategic buyer make an informed decision about a potential acquisition and can protect them from future issues or complications.
In conclusion, strategic buyers are companies that acquire other companies for strategic reasons. They aim to create synergy between the acquired company and their existing business by adding capabilities, products, or services. Strategic buyers differ from financial buyers, who are more focused on financial gains. While the advantages of being a strategic buyer are significant, there are potential disadvantages, such as the high level of management required for integration, cultural differences, and focus on integration rather than core business objectives. Strategic buyers must undertake due diligence to make informed decisions and protect themselves from future complications.
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