By: Hussein Poonjani
You’ve spent countless years—and money—investing profits back into the business in an effort to stay ahead of the competition. Or maybe the simple fact is, people want what you have and organizations have started knocking at your door. What are your options?
While that type of sale is perfectly valid, it’s the strategic sale that potentially offers the greater reward for you, at least financially.
Because a strategic buyer won’t be looking at your business as it is today, they’ll be looking at its potential in their hands. Do they see it as a gateway into a new market, or seek to utilize the relationships you have with your existing customers, for example? What might be a 50-million-dollar-a-year business to you, could be viewed as hundreds of millions to them – if they are thinking on a global scale, if all goes according to their long-term strategic plan.
Unlike the financial buyer, a strategic buyer will be less concerned about your back office operations and infrastructure than they will about the synergies into which they can tap. Could they increase efficiencies by reducing overhead, leverage existing distribution channels, or cross-sell products and services—these are some of the areas on which the strategic buyer will focus. They simply want to ensure a sound business fit.
Strategic acquirers also differ from their financial-buyer kin, the latter coming generally in the form of private equity, in that they will likely be a competitor, or other type of organization that has some degree of familiarity with your business, such as a supplier or customer. And unlike the financial buyer, they will be looking at things over the long-term with the goal of your business becoming a permanent part of theirs—and thus realizing the potential that comes from a whole greater than the sum of its parts.
While the strategic sale offers the optimal selling price for the owner, it’s not without its risks- however, these tend to be on the buy side. For example, not paying enough attention to integration efforts can create problems. The major risk for the seller is opening up your books to your competitor—not a problem if the marriage goes ahead, but a significant risk if the nuptials fall through.
But as Mark Zuckerberg once said “The biggest risk is not taking any risk”—and we all know how his risks have paid off.
The author is a senior manager for Corporate Finance at Grant Thornton Canda. Grant Thornton International Ltd. is a leading global business adviser that helps dynamic organizations unlock their potential for growth. Punongbayan & Araullo (P&A) is the Philippine member firm of Grant Thornton International Ltd. For inquiries, you may direct them to 988-2288 ext. 760 or visit our website at grantthornton.com.ph
As published in Philippine Daily Inquirer, dated 8 August 2016