Synergistic buyers are U. S. companies and foreign companies who are already established within an industry. They are usually a dominant player within their geographic region or on a national basis and seek rapid growth through acquisition. These buyers will operate as a public corporation, private corporations or an established partnership.
Often the target company is merged in with the acquiring company either immediately or over a period of time. The synergistic buyer's primary goal is to acquire a company or a group of companies within the same industry to gain economies of scale and business growth not otherwise available. These buyers are seeking long term growth rather than rapid growth and quick cash out sought by the financial buyers. Private companies may be looking for sufficient growth and size to go public; however, the principals in the acquiring firms typically plan on remaining in the operations on a long term basis.
The synergistic buyer’s seed capital usually comes from their own equity funds. Long term financing is usually arranged through banks and mortgage companies. Sometimes mezzanine financing is needed to bridge the gap between the sales price and the long term financing. Sometimes, the principal in the target firm is given stock in the acquiring company as part of the selling price and hired to continue managing the acquired firm.
- Generally, target companies must have gross revenue in excess of $5 million and be in the same or similar industry as the synergistic buyer.
- The target company must offer unique market share not readily available to the acquiring company, such as opening in a new market not previously served by the acquiring company or obtaining product lines and/or services not previously provided, but synergistic to the acquiring firm customer base.
- Target companies will be especially attractive in industries where economies of scale are possible whereby the acquiring company can obtain significant post-deal expense savings, such as elimination of dual facilities, support staff, or other overhead expenses.
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