Why would one buyer value your business more than another?

Investors and investment-backed buyers can be strong acquirers. Their valuation can be heavily influenced by the standalone return available from the business. They tend to focus on:

• EBITDA and earnings quality
• Cash generation and growth
• Recurring revenue
• Management depth
• Risk
• Debt and leverage capacity
• Return on investment and future exit potential

A strategic buyer may value the same standalone profits, but may also see additional value from what the business adds to its group:

• Customer access, new geography and cross-selling
• Complementary products, specialist capability or technology
• Intellectual property, accreditations or skilled staff
• Distribution, manufacturing capacity or supplier relationships
• Market share, vertical integration or removing a competitor
• Cost and revenue synergies
• Platform potential for further acquisitions, or speed to market

A strategic rationale can increase buyer interest and potentially influence what a business is worth to that buyer, but strategic buyers do not automatically pay a premium. Synergies do not guarantee a higher valuation.

An effective sell-side adviser should not simply identify companies in the same industry. They should understand why particular acquirers might want the business and use that rationale to prioritise buyers, position the opportunity and conduct outreach. They should be able to answer:

1. Why would this buyer want this business?
2. What does the acquisition add, and what strategic gap does it fill?
3. What problem does it solve?
4. What revenue opportunity could it create, or costs could it reduce?
5. What capability would the buyer acquire?
6. What would take years to build organically?
7. Could this business be worth more inside the buyer's group than on a standalone basis?

Different buyers can see very different value in the same business.