If your startup is getting acquisition interest, congratulations! But should you sell to a private equity firm or a strategic buyer? Private equity (PE) firms and strategic buyers have fundamentally different financial approaches to M&A. This is because of their contrasting goals, investment strategies, and operational priorities. At its core, the difference in financial approach comes down to playing different “games”. Private equity is in the business of rapid value creation and maximizing financial returns within a specific window. So PE’s approach revolves around leverage, cost efficiency, and short-term operational improvements. Strategic buyers are playing a longer game, focusing on integration, synergies, and sustainable growth over time. Their financial strategies are shaped by their desire to strengthen their core business, not just generate a high exit multiple.
Also important to realize is that Private Equity firms often work on the basis of a “buy and build” strategy. Having been part of a number of these projects in the deep-tech space, it is important for a potential target to realize whether you are going to be part of the bottom of the stack or if you are going to be the cherry on the cake. Specifically in the latter role, the perspective on time [to exit] is usually shorter as compared to one of the first building blocks of the strategy. Apart from the time, these are also relevant considerations for the Management Team and their role in the (continued) execution of the strategy.
“Refined with AI assistance to bring you clearer insights!”
The path to innovation is laden with unique and often substantial cost drivers that set these ventures apart from their more conventional counterparts. To handle these costs effectively, you need to understand them clearly and plan your finances and resources carefully.
At a later stage we will provide a series of postings on how to build and maintain your company’s dashboard. Most importantly, we cover how to use it. The most eloquent dashboard does no good if it is not properly used.
As a Management Team, you need to make the dashboard the central point of engagement.
If your startup is getting acquisition interest, congratulations! But should you sell to a private equity firm or a strategic buyer? Private equity (PE) firms and strategic buyers have fundamentally different financial approaches to M&A. This is because of their contrasting goals, investment strategies, and operational priorities.