In the old traditional investment model, it was more common for a financial buyer like a private equity firm or a hedge fund to consider those investments as strictly a rate of return rather than a long-term investment. In other words, more a number on a spreadsheet rather than a living, breathing company.
But in the new model, this is often no longer the case. What we are seeing is a trend of financial buyers emphasizing long term investments in companies. Rather than just a quick turnaround, they are looking to bring partnership and enhancements to the company to increase the value over time.
This approach makes a big difference to your company, should you go the financial buyer route. In this blog, we are exploring the new approach of financial buyers, the value they can bring your company, and what to look for in a potential financial buyer.
The New Financial Buyer
Financial buyers are now long-term investors who want to maximize their return on investment when buying a company. You will see this new approach if you look at the “About” section of any modern private equity company – they will tout their partnership and collaboration and an investment strategy with no exit timeline for portfolio companies.
In part, this new method is meant to differentiate financial buyers from others. It emphasizes the culture their firm can bring to the table to help your company succeed. The focus is instead on employee retention, growth initiatives, and management equity rollover among other benefits, rather than cutting costs or making dramatic personnel changes.
The Value New Financial Buyers Bring to the Table
The new model financial buyers can offer a variety of economic benefits for companies who partner with them.
Economies of Scale: The biggest boon is the economies of scale they can instantly bring to the table. They can use their existing portfolio companies to help you increase revenue via access to untapped markets or customer bases.
Back Office Assistance: Another benefit is that often they have platforms that can take over time consuming back office duties, allowing you to focus more time on revenue generating activities.
Financial Benefits for Equity Holders: Even with the longer term investments, financial buyers won’t hold the assets indefinitely. For those who have equity in the company post-acquisition, it’s an opportunity to enjoy the proceeds of a sale a second time.
What You Should Look for in a Financial Buyer
When looking for a financial buyer in this new market, it’s important to ask good questions. Here are some examples that will help you weed out those looking to make a quick buck versus a benefit-adding partner.
- Do you have experience closing a deal in this space?
- How long have you been around?
- Why are you interested in our company?
- Do you have operating partners in the space?
- What is the makeup of your capital stack? How much debt will be placed on our balance sheet?
- What is your take on partnership and culture?
- How do you structure your deals?
- What is your timeline for a completed transaction?
- What is your plan for my employees?
The new model of financial buyers as long term partners rather than the traditional “return over everything” model of the past presents opportunities for companies selling to this space. As long as you are armed with information, you should be able to find a financial buyer that will help your company in the long run while providing financial benefits to you as the seller.
