1. Types of Buyers
So before we close off this discussion on mergers and acquisitions,
let's discuss strategic versus financial buyers. So let's suppose we were
working for a company and the company wanted to put itself up for
sale. It could look either for a strategic buyer or a financial buyer.
A strategic buyer would be another operating business, for example.
If there was another operating business that wanted to acquire us,
and that business was similar to our business, that would be a horizontal
expansion. Or if that strategic buyer wanted to expand vertically, either
upstream or downstream, that would be an example of a vertical expansion.
Since strategic buyers have businesses which would be similar to ours,
they often are able to capture synergies, so they need to identify and
deliver on operating synergies. Financial buyers, on the other hand, are
simply financial entities, and they are not operators of businesses usually.
They could be private equity firms which would be a financial sponsor,
or it could be a professional investor or a non operator.
One of the things that's interesting about financial buyers is that they
often use a lot of leverage in order to maximize equity returns.
2. Let's practice!