Topic 7
Financial and Strategic Buyers
Topic 7 provides an overview of the characteristics and intentions of financial buyers and strategic buyers. Their interests and intentions are quite different.
FINANCIAL BUYERS
- Financial buyers acquire businesses with the goal of eventually selling them (alone or as part of a group of acquired entities—e.g., a roll-up) to realize financial returns on the investors equity invested.
- The financial buyers’ objective is to turn over the equity capital invested in a deal in approximately a three- to seven-year period from the date of acquisition and realize a target internal rate of return on equity capital invested in the deal generally in excess of 20% to 25% (see Topic 43).
- The largest portion of the financial buyer's eventual return on the equity investment arises from possibly an interim recapitalization event plus the final exit event: initial public offering (IPO) or sale.
- The financial buyer has great expertise in timing the exit to coincide with the most opportune industry and credit market cycles where the value of the exit option chosen is maximized.
- Financial buyers generally purchase sound, profitable operating businesses with prospects for value growth attributable to sound management and execution in strong industry sectors and reasonable prospects for exit potential.
- Financial buyers generally do not possess particular industry knowledge or skills to exercise the benefits of integration or operating synergy. More recently financial ...
