5 Key Differences Between Financial & Strategic Buyers

When you decide to sell your company, one of the first things you will want to do is work with your M&A advisor or investment banker to begin researching and building a buyer list — a list of investment firms, corporations, and individuals to approach during the M&A sale process.

Potential buyers fall into two primary categories:

→ Financial Buyers: These include private equity firms (also known as “financial sponsors”), independent sponsors (or “fundless sponsors”), family offices, search funds, and high-net-worth individuals. They are in the business of making investments in companies and realizing a return on their investments.

→ Strategic Buyers: These are operating companies that provide products or services and are often competitors, suppliers, or customers of your firm. They can also be unrelated to your company but want to grow in your market to diversify their revenue sources. They aim to identify companies whose products or services can synergistically integrate with their existing business.

Below are the key differences between the two buyer types. To dive deeper, see the end of this article to download the ebook. To receive articles like this directly to your inbox, subscribe to Exit Ready below.

5 Key Differences Between Financial & Strategic Buyers

1. Evaluation 

Strategics often focus on how a target company aligns with their existing operations. They assess synergies like customer overlap, intellectual property, or manufacturing efficiencies, sometimes prioritizing integration potential. This focus on integration may lead them to overlook standalone financial performance in favor of long-term operational alignment.

Financial buyers typically evaluate a business as a stand-alone entity, concentrating on cash flow generation and the ability to service leveraged debt. Their primary goal is to increase the company’s long-term value, ensuring a profitable exit within their defined investment horizon.

2. Industry Expertise

Strategic buyers usually have in-depth knowledge of their industry, allowing them to focus more on strategic fit rather than questioning overall industry attractiveness. This inherent familiarity can reduce the likelihood of deal fallout due to industry concerns.

Financial buyers often invest significant resources into understanding both macro and micro industry trends, sometimes engaging external consultants. If the industry is deemed unattractive following their research, they may walk away from the deal.

3. Back-Office Infrastructure

Back-office infrastructure is typically less of a concern for strategic buyers, as these functions are often integrated or replaced during post-transaction processes.

Financial buyers place greater emphasis on back-office functions like IT, HR, and legal processes, as they rely on the existing systems to maintain operations post-acquisition.

4. Investment Horizon

Strategic buyers tend to have an indefinite ownership horizon, fully integrating the acquisition into their long-term operations. This makes them less sensitive to fluctuations in the business cycle.

Financial buyers generally operate within a 4–7-year investment horizon, making them more sensitive to business cycle risks. When assessing a deal, they carefully evaluate exit opportunities and consider potential EBITDA multiple compression or expansion.

5. Transaction Efficiency

Strategic buyers may face delays due to internal processes, such as board approvals or competing priorities. The lack of a dedicated M&A team can further slow down transactions.

Financial buyers typically have well-honed M&A expertise, enabling them to execute deals efficiently. Their streamlined processes can result in shorter timelines and reduced complexity.

Active Buyers on Axial

There are 4,891 buyside entities actively sourcing deals on the Axial platform, including 2,599 financial buyers and 2,292 strategic buyers. Among the strategic buyers, the majority (1,537) are sponsor-backed, meaning they are owned or financially supported by investment firms. These deals are sourced by their sponsors on their behalf via the Axial platform. The remaining strategic buyers include 412 traditional corporate acquirers and 343 holding companies.

Sponsor-Backed Strategics By Company Type

This mix of financial and strategic buyers actively sourcing deals on the Axial platform reflects a range of acquisition strategies and priorities. We reviewed the closed deal data from the last 24 months to take a closer look at how transactions have varied by buyer type.

Closed Deals By Buyer Type | L24M

*Days from the LOI execution date to closing date

The Seller’s Guide To Financial vs. Strategic Buyers eBook

For an in-depth review of these two key buyer types, please complete the form below to download The Seller’s Guide To Financial vs. Strategic Buyers eBook.