What Is a Strategic Buyer?

A strategic buyer is a company that acquires another company in the same industry to capture 澳洲幸运5官方开奖结果体彩网:synergies. The strategic buyer believes that the two companies combined will be greater than the sum of their separate individual parts and aims to integrate the purchased entity for long-term value creation.

Because a strategic buyer expects to get more value out of an acquisition than its 澳洲幸运5官方开奖结果体彩网:intrinsic value, it will usually be willing to pay a premium price in order to close the deal.

How a Strategic Buyer Works

As the name implies, strategic buyers purchase companies that they feel fit strategically with what they already own. A 澳洲幸运5官方开奖结果体彩网:target company is typically either a competitor in the same industry as the buyer, or a company with complementary attributes in another similar industry. The "strategy" part comes into play when the acquirer sees an opportunity to expand 澳洲幸运5官方开奖结果体彩网:product lines in the same market, branch out into new regions, secure additional 澳洲幸运5官方开奖结果体彩网:distribution channels, or generally boost 澳洲幸运5官方开奖结果体彩网:operational efficiencies.

Suppose a food manufacturer that has made processed foods for decades wants to jump-start an effort to offer organic products. It becomes a s🐭trategic buyer when it acquires an organic food company to serve the same market.

Post-acquisition, the combined company will not only benefit from this top-line synergy, but it will also create production and distribution synergies as well by increasing 澳洲幸运5官方开奖结果体彩网:factory utilization rates and using the same channels to deliver products to cℱustomers.

Throughout the cost structure of the combined firm, overlapping costs can be removed, such as a redundant factory or office space and external services. With opportunities to increase total sales and enhance 澳洲幸运5官方开奖结果体彩网:productivity at the same time, the strategic buyer stands a go🌸od chance of turning two plus two into five.

Criticism of Strategic Buyers

A strategic buyer often generates a large portion of cost savings by laying off workers. When tw꧃o companies operating in the same market combine, a lot of positions begin to overlap or overfill, leaving some employees surplus to requirements.

For instance, there is no need for two 澳洲幸运5官方开奖结果体彩网:chief financial officers (CFOs), selling and 澳洲幸运5官方开奖结果体彩网:marketing staff can be reduced, and a layer of mid-level management is no longer necessary. Dismissing these staf𒁏f makes sense for the strategic buyer, helping them to trim costs and boost efficiency, though not everyone is so undꦺerstanding.

Concerns over potential job losses can spark outcry from the public, 澳洲幸运5官方开奖结果体彩网:trade unions, and the gov🤡ernment. Negative publicity might end up damaging the company’s reputation. In some rare cases, it may even lead to the acquisition being vetoed, particularly if the strategic buyer is a foreign one with the bulk of its operations located abroad.

Strategic Buyer Considerations

There are numerous considerations a strategic buyer makes when evaluating whether or not to pursue an acquisition. A strategic buyer must be aware and able to evaluate the foꦅllowing key factors as part of the consideration:

• Business Fit: Assessing the target company's alignment with their entire business strategy and objectives is known as the strategic fit. Strategic buyers must place high priority on making sure their purchase will mesh well with current operations.
• Market Potential: Strategic buyers assess the target company's competitive environment, market position, and growth potential. They take into account things like market size, industry trends, client demand, and the market share and competitiveness of the target firm.
• Customer Base and Relationships: Strategic buyers assess the customer base and relationships of the target firm. They evaluate the likelihood of upselling or cross-selling prospects as well as client loyalty, contract duration, customer acquisition expenses, and potential.
• Management Team: Strategic buyers assess the management team, leadership potential, and talent pool of the target firm. They evaluate the management team's skill, experience, and cultural fit as well as the likelihood of keeping key personnel after the purchase.
• Risk Evaluation: Strategic buyers thoroughly evaluate the target company's risks. They recognize and assess possible risks such as those related to the market, operations, finances, and reputation.
• Exit Strategy: Strategic buyers take a long-term outlook for the purchased firm into account. They evaluate the possibilities for future expansion, value generation, and possible 澳洲幸运5官方开奖结果体彩网:exit strategies like selling the business or going public.

Strategic Buyers and Regulation

Strategic buyers must consider various factors 🐻when evaluating the potential impact of an acquisition. This includes but is not limited to securities regulations, foreign investment regulations, intellectual property rights, contracts and agreements, employment and labor laws, data privacy and security, environmental regulations, and tax considerations.

Securities regulations may apply to 澳洲幸运5官方开奖结果体彩网:publicly-traded companies, wꦺhile foreign investment regulations may require approval from relevant government bodies or regulatory au🍌thorities. Intellectual property rights must be assessed, and contracts and agreements must be reviewed to identify potential risks, liabilities, change of control provisions, or necessary consents for the acquisition.

Employment and labor laws must also be considered, especially when considering the domestic region the acquiring company's workforce is primarily located. This includes complying with employment contracts, labor regulations, employee benefits, and collective bargaining agreements. Environmental regulations should also be considered such as pending environmental litigation or contamination issues relating to the acquiring company.

Last, strategic buyers need to consider financial regulations and tax implications associated with the acquisition. This includes assessing tax liabilities, potential tax benefits or incentives, 澳洲幸运5官方开奖结果体彩网:transfer pricing issues, and any regulatory financial reporting requirements related to the transaction. This may also include understanding any extenuating liabilities outstanding of the acquired company. Though strategic buyers do not prioritize financial matters, they may still want to be mindful of financial matters that may strategically impact🐭 their business.

Example of a Strategic Buyer

An example of a strategic buyer is T-Mobile's acquisition of rival Sprint in 2020. The deal between America's third- and fourth-largest wireless carriers at the time was valued at $26.5 billion, and the combined company covers about 127 million customers, according to The Wall Street Journal. The telecom companies indicate that the merger has created a much "fiercer competitor" to AT&T Inc. (T) and Verizon Communications Inc. (VZ).

In 2021, Salesforce completed its acquisition of Slack Technologies, Inc., combining the world's #1 CRM with a digital platform for the work anywhere world. According to Saleforce's CEO, the acquisition was driven by the strategic initiative that the workplace isn't snapping back to the way it was before the pandemic.

In 2022, Microsoft announced the acquisition of Activision Blizzard, a leader in game development and content publisher. This strategic move was intentional in the sense that Microsoft strove to accelerate its growth in the gaming business. According to CEO Satya Nadella, "gaming is the most dynamic and exciting category in entertainment across all platforms".

Strategic Buyer vs. Financial Buyer

Acquirers are often described as either being strategic or financial buyers. Unlike the former, a financial buyer’s goal is to buy businesses for as little as possible, with the hope of selling them at a profit five or ten years down the road. The sector the target operates in isn’t necessarily important and stakes big enough to be influential are usually preferred over full-scale 澳洲幸运5官方开奖结果体彩网:takeovers.

Financial buyers look for potential bargains that can be improved and eventually net their investors a decent return. Often they will be interested in what 澳洲幸运5官方开奖结果体彩网:cash flow the investment will generate, as well as the kind of 澳洲幸运5官方开奖结果体彩网:exit strategies it will offer in the future.

The Bottom Line

Strategic buyers are companies that acqui🅘re other businesses with specific objectives aligned to their overall strategy. Unlike financial buyers focused on financial returns, strategic buyers prioritize the fit between the target company and their strategic goals. They seek to create long-term value by expanding market presence, enhancing product portfolios, accessing new technologies,💞 realizing synergies, consolidating markets, and mitigating risks.