There are various reasons that can lead to the (partial) sale of a company. But is a strategic or a financial investor the right partner? A comparison of the two groups of buyers.

There are various reasons that can lead to the (partial) sale of a company. There are many questions the seller is confronted with, but one of the most important is sometimes that of finding a suitable buyer. When it comes to selling a family business, for example, there is often an increased interest in finding a buyer to whom one can hand over the result of years of work with a clear conscience. The two most common groups of buyers are compared and explained below.

Financial investors

Financial investors include private equity companies, family offices and investment funds. In this case, an investment is made for a group of investors with the aim of achieving positive returns. Increasingly, this group of buyers is also relevant for medium-sized companies, but still also for larger and international transactions.

• Holding period of the investment: Usually five to seven years; in the case of so-called evergreen structures of the financial investor, an unlimited holding period can be realized

• Objective: Prompt realization of growth potential and return intentions; a buy & build strategy is frequently announced in order to enable early achievement of objectives through strategic acquisitions
• Operational intervention: Usually little or no operational intervention; if required, contribution of partners or network contacts. However, mandatory introduction of an advisory board usually takes place, provided that financial figures are always available.
• Collaboration: Often the target within the portfolio is managed by 1 to 2 main contact persons; usually one to five fixed exchange meetings per year. Rules of procedure regulate a list of possible transactions requiring approval.
• Reporting: Depending on the investor, usually no concrete conversion of controlling systems is required.
• Personnel: The goal of a financial investor is the continuation of a well-functioning company and an increase in returns. Accordingly, retaining management and key positions is in the investor’s interest
• Participation: In most cases, the financial investor aims for at least a qualified majority, although minorities are also possible; the return participation or new participation of vendors or management positions is perceived positively by a financial investor

Strategic investors

The second large potential group of buyers are the strategic investors. These include, for example, competitors, customers, cooperation partners or other companies that have potential vertical or horizontal synergies with the company to be sold and can thus strengthen the market position through the acquisition.

• Holding period: Usually long-term/indefinite holding period, often in connection with a real merger with the acquiring company
• Objective: Realization of synergies, e.g. technology additions, customers, geographic expansion, market & competitive position, expertise or personnel development
• Operational intervention: Compared to a financial investor, the intervention is stronger, as there is an alignment and adjustment of strategy and operational processes and the integration should be implemented as efficiently as possible, such as merging R&D, accounting, contracts, etc.
• Cooperation: Close cooperation between the management levels of both parties in order to realize a target-oriented merger and to jointly pursue promising interests.
• Reporting: Often there is a change in reporting, IT or controlling systems in order to create uniform structures and minimize administrative effort in the long term.
• Personnel: Depending on the type of integration, there may be duplicate staffing of certain positions, which can be optimized through possible restructuring measures
• Participation: As a rule, a majority is desired, although in individual cases, e.g., when technology or know-how is to be acquired, minorities may also occur

Tip: Get to know each other at management or coffee meetings

In summary, early identification of wishes and ideas regarding the buyer is recommended in any case. Depending on the intended structure with potential back participation, the relationship with the buyer plays an increased role in the future cooperation. Management meetings or also coffee meetings (shorter and more casual get-to-know-you meetings in a small circle), are therefore an important instrument for creating a trusting and personal basis at an early stage, as well as for defining and aligning common interests