DEFINITION of Financial Buyer
A financial buyer is a type of buyer in an acquisition that is primarily interested in the return that can be achieved from the acquisition. A financial buyer is different from a strategic buyer, which evaluates an acquisition primarily on how it fits with the acquiring company's strategic goals. A strategic buyer, for example, might acquire a company because that company has a superior distribution network or has products or geographic territories that are complementary. The target company's financial condition would therefore be a secondary consideration.
A financial buyer is typically a long-term investor looking for a solid, well-managed company. They may not make any immediate changes, or they may implement changes designed to make a company profitable, and, therefore, more attractive to future investors.
BREAKING DOWN Financial Buyer
Financial buyers may focus on how much cash flow a business generates, and they will also take into consideration possible exit strategies. They may seek to improve cash flows by growing revenues or by cutting cost. They may also merge with similar companies, thereby creating economies of scale. Exit strategies may include an initial public offering (IPO) or selling the company outright to a strategic buyer.
Financial buyers often use a significant amount of leverage in their acquisitions. And in effect, their lenders are acting as their partners in the transaction. Financial buyers are also more likely to keep on existing management.
Unlike for strategic buyers, price is a very important consideration as it ultimately affects the return a financial buyer may achieve. Strategic buyers, on the other hand, may be willing to pay more for a company because they may see synergies that can be achieved.