We are getting interest from both private equity groups and larger strategic competitors in our space. How should we think about how these different buyer types will structure their offers and value our operational systems?

Question

Tyler Smith · Accepted Answer

Strategic buyers and financial sponsors look at your business through different lenses. A strategic buyer wants to integrate your business into theirs. They value your technology, your proprietary processes, and your market share. They often offer a higher multiple because they can cut overlapping overhead like human resources and accounting, which boosts their pro forma EBITDA. However, they will want to fully integrate your operations, which can be disruptive to your culture and legacy. Financial sponsors, like private equity groups, typically value your business as a standalone platform or an add-on to an existing portfolio. They look closely at your baseline capitalization of earnings and your leadership team. If you have a solid leadership team running on EOS, a financial sponsor may value this independence highly because they do not have the operational capacity to run your business day-to-day. They might offer a lower multiple than a strategic buyer but provide more flexibility, such as letting you roll over equity to participate in their eventual exit. Use your V/TO to clarify your long-term goals for your team and legacy before choosing between these structures.