Spring 2012 issue of Horizons

Investors/Buyer Types

Buyer Type

Description

Strategic Buyer

Strategic buyers are interested in a target’s fit into their own long-term business plans. Their interest includes vertical expansion (toward the customer or supplier), horizontal expansion (into new geographic markets or product lines), eliminating competition, or enhancing some of its own key weaknesses (technology, marketing, distribution, research and development, etc.). Company in the same industry providing the same services. Looking to expand expertise, market share, geographic reach, etc. Typically leverage resources across both businesses. Company in the same or similar industry providing complementary services. Looking to expand capabilities and provide additional services. Typically leverage customer base or some other aspect of the business. Financial buyers can generally be classified as investors interested in the return they can achieve by buying a business, which is a function of the firm’s cash flow. Their hold periods vary, but are typically 5-8 years. Exit plans include selling the company at a later date or, in some cases, IPO. Investment company with a pool of capital (the fund) to draw from to make investments. Groups typically target specific types of businesses (size, industry, profitability, management, etc). Investment horizon is typically less than 7 years. A private equity group without a fund. They make investments on a similar basis, but have to go out and raise money each time they invest in a company. Typically an individual looking to buy and operate a business. The individual is backed by a group of investors who will provide the capital for the acquisition. Company that wholly or partially owns a group of businesses. Businesses could have related products or services, but not necessarily. Usually they are long term investors. High net worth families that pool their capital for investment purposes. Many family offices have a division that acquires middle market businesses. Independently wealthy individual looking to acquire a business for investment and/or operating purposes. Mezzanine investors typically are a junior financing source, but sometimes participate in the equity of transactions in the form of warrants or the direct purchase of equity.

- Pure Play

- Periphery

Financial Buyer

- Private Equity (Funded) - Private Equity (Funded)

- Search Fund

- Holding

Company

- Family Office / Individual Investor

- Mezzanine

It is important to understand the different types of buyers or investors so that you are aware of their motivations and the amount of control they will impose on the company. Both the entity structure and type of buyer or investor to pursue eventually require careful planning, consideration and assistance from outside experts.

Information gleaned from: Nolan & Associates

Todd Pleimann, CPA - Kansas City

Rodney Rice, CPA - Denver Partner Life Sciences Services Group rodney.rice@rubinbrown.com 303.952.1233

Managing Partner, Kansas City Office todd.pleimann@rubinbrown.com 913.499.4411

www.rubinbrown.com

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