What Is a Strategic Buyer?

Jim B.
Jim B.
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A strategic buyer is a company that buys another company because of some sort of connection between the two companies that makes the target company enviable to the buyer. For that reason, the buying company will often pay a premium for the target company, meaning that they will acquire it for more than others might consider it to be worth. There is usually some sort of synergy between the target company and the buying company, which is why a strategic buyer is often known as a synergistic buyer. This is the opposite of a financial buyer, which is a company that will buy another based solely on the potential and intrinsic value of the target company.

Corporate takeovers are a major part of the modern business world. Corporations looking to expand their business reach in some way can often target companies that are either looking to sell or are struggling on their own. The reasons for such a purchase often depend upon the plans the buying company has for the target. When a strategic buyer purchases another company, it’s because of a certain type of connection between the businesses conducted by the two companies.

There are many different reasons why a strategic buyer might target a company. It can simply be a case of the target company occupying a geographic location that the buyers wish to inhabit. The target company may also have some tangential connection to the business being conducted by the buying company. For example, a company that manufactures a certain type of product may obtain a company that specializes in the distribution of that product.

In most cases, a strategic buyer will make a purchase of a target company by paying a higher price than the market might consider prudent. This is because the specific benefits provided to the buying company make such overpaying worth it. It is often more cost-efficient for a synergistic buyer to purchase an existing company rather than to try and create a new division of their operations.

While a strategic buyer might be motivated to purchase a company that has certain beneficial qualities, they have to be sure that they don’t pay too high a premium for the target. It is important that the buyer keep in mind that there were likely certain problems with the target’s operations, or else they probably would not have been up for sale in the first place. Strategic buyers must copy some of the tactics of financial buyers, who make sure that target companies have certain intangibles that would make them profitable regardless of the nature of their business.

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