Strategic buyer what is

By: Paris Aden. By: Erick Hamdan. Masterclass Dictionary Dictionary Term of the Day. Hostile Takeover. Divestopedia Terms. Neutralizing the Due Diligence Grind. Deal Structures Through the Eyes of an Acquirer. Customer Communication in Mergers and Acquisitions. Lessons Learned from Negative Buyer Feedback. The ABCs of Earnouts.

Follow Connect with us. Sign up. With chances to increase total sales and improve productivity simultaneously, the strategic buyer stands a high chance of converting two plus two into five. In a deal which reverberated loudly all over corporate America in , Amazon purchased Whole Foods.

Amazon was a strategic buyer of with two solid goals: immediate and far-reaching entry into the grocery business, and a network of brick-and-mortar locations which serve majority of the same customer types shopping online at Amazon. As conceived, its anticipated that the value creation from this combination would mainly be seen in the early stages of sales synergies and then seen in sales, as well as, distribution synergies eventually. Written by Jason Gordon Updated at July 10th, Contact Us If you still have questions or prefer to get help directly from an agent, please submit a request.

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Measure content performance. Develop and improve products. List of Partners vendors. A strategic buyer is a company that acquires another company in the same industry to capture synergies.

The strategic buyer believes that the two companies combined will be greater than the sum of their separate individual parts and aims to integrate the purchased entity for long-term value creation. Because a strategic buyer expects to get more value out of an acquisition than its intrinsic value , it will usually be willing to pay a premium price in order to close the deal.

As the name implies, strategic buyers purchase companies that they feel fit strategically with what they already own. A target company is typically either a competitor in the same industry as the buyer, or a company with complementary attributes in another similar industry. The "strategy" part comes into play when the acquirer sees an opportunity to expand product lines in the same market, branch out into new regions, secure additional distribution channels , or generally boost operational efficiencies.

Suppose a food manufacturer that has made processed foods for decades wants to jump-start an effort to offer organic products. It becomes a strategic buyer when it acquires an organic food company to serve the same market. Post-acquisition, the combined company will not only benefit from this top-line synergy, but it will also create production and distribution synergies as well by increasing factory utilization rates and using the same channels to deliver products to customers.

Throughout the cost structure of the combined firm, overlapping costs can be removed, such as a redundant factory or office space and external services. With opportunities to increase total sales and enhance productivity at the same time, the strategic buyer stands a good chance of turning two plus two into five. The value-creation from these combinations will mostly be seen in sales synergies in the early stages—other synergies generally take longer to come to fruition.

A strategic buyer often generates a large portion of cost savings by laying off workers. When two companies operating in the same market combine, a lot of positions begin to overlap or overfill, leaving some employees surplus to requirements. For instance, there is no need for two chief financial officers CFOs , selling and marketing staff can be reduced, and a layer of mid-level management is no longer necessary.

Dismissing these staff makes sense for the strategic buyer, helping them to trim costs and boost efficiency, though not everyone is so understanding. Concerns over potential job losses can spark outcry from the public, trade unions , and the government. In some rare cases, it may even lead to the acquisition being vetoed, particularly if the strategic buyer is a foreign one with the bulk of its operations located abroad.