Buying motives – what do companies look for?

Companies may be financially, strategically and/or operationally interested in acquiring a company.

Financially motivated company buyers are interested in a financial investment. Their search will be based on which companies currently fit well into their portfolio. Criteria include the size of the company, the magnitude of the financial commitment required to acquire shares, the industry, the lifecycle stage, and the profitability before depreciation, amortization, interest charges and tax burden (EBITDA). Some financial investors specialize in companies in certain industries and certain lifecycle stages and profitability for which they develop particular expertise, while others seek the broadest possible portfolio to better diversify their risk. For example, there are financial investors who specialize in young companies in the startup phase, where both opportunities and risks are particularly high. Investors often bring not only capital into startups, but also relevant contacts, for example for marketing. Other investors specialize in established, profitable companies that are not “bargains” but promise long-term returns without high operational involvement on the part of the investor. Still others focus on so-called “distressed” companies in need of turnaround. In the latter case, the purchase price is usually favorable, but the investor must bring cash and turnaround capacity to the company.

Strategically motivated corporate buyers are typically companies or groups of companies looking for businesses that complement their existing capabilities, market presence, and/or technologies and processes. It is important for strategic investors to occupy strategically advantageous positions. Thus, their intention is not only to fill their own gaps in a meaningful way; rather, many investors intend to be able to offer and deploy specific competencies across the board in the buy & build process.

Operationally motivated corporate buyers are looking for companies through which they can tap synergies, either by bundling volumes or by spreading their structural costs over a larger volume of business. Scaling effects can enable increases in profitability. As a result, companies with existing management structures can often achieve greater effectiveness. Many operationally motivated investors are also concerned with transferring their particular competencies to acquired business units. With their expertise, they can develop favorably acquired companies that are only performing moderately into highly profitable business units.


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