We are choosing between a strategic buyer who claims they can cut overhead and a financial sponsor who wants us as a platform company. How do these two buyer types structure their valuation multiples, and how do we position our leadership team in each deal?

Question

Tyler Smith · Accepted Answer

Strategic buyers and financial sponsors look at your business through entirely different lenses, and understanding this is critical to maximizing your exit. A strategic buyer is looking for synergies. They want to integrate your business into their existing operations, meaning they can eliminate redundant costs like your accounting, marketing, or HR departments. Because of these synergies, strategic buyers can often pay a higher multiple, but they usually do not need your entire leadership team post close.

A financial sponsor, like a private equity firm, is focused on financial returns. If they want you as a platform company, they are buying your leadership team, your operating systems, and your infrastructure to use as a foundation to acquire and roll up smaller competitors. They will value your business based on its standalone scalability and will heavily rely on your team to run the day to day operations.

When positioning your company, use your Accountability Chart to show your strength. If negotiating with a strategic buyer, highlight your proprietary technology and customer list. If negotiating with a financial sponsor, emphasize the strength of your leadership team and how they use EOS® to run a self sustaining business. Knowing who you are negotiating with determines how you package your value.