Strategic business buyers come in many forms, and can be the best option for owners looking to sell or transition their business.

“They’re generally a supplier or a customer of your business,” says Christie Henderson, managing partner with chartered accounting and business advisory firm Henderson Partners in Oakville, Ont. “They’re going to look at whether your company serves a new market for them or has intellectual property they can use, or whether there are manufacturing economies of scale they can realize.”

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For them, owning you will help their existing business by providing horizontal or vertical integration.

The Pros:

  • Price advantage. Because the strategic buyer can take advantage of synergies with their own company, they’ll often pay a premium. For example, a potential buyer makes chemicals, you make soap. If they buy you, input costs for the soap factory go down and they have a loyal client. In addition, if you open up the sale beyond family, employees, and competitors, there are simply more buyers. That ensures greater competition for the business and usually a higher price.
  • In addition, while passing the business down to the next generation may fulfill a client’s dream, they won’t see a lot of money up front from the sale, says Marco Tomassetti, a partner with Capital West Partners in Vancouver. The value of the business is frozen when sold and the new owner repays you through dividend over time. Read: Beginning the succession discussion
  • Your risk factor is nil. The buyer often has the financial wherewithal to pay you off right away, says Henderson, so you’re not exposed to continuing risk.
  • The seller gets a clean break. “In the majority of the cases that we’ve seen, the buyer will want access to the seller for at least 12 months,” says Cal Cochrane, president of Geneva Merger & Acquisition Services of Canada in ON. “The buyer’s attitude is that the sooner they get that owner out of there, the better. They want the employees to relate to the new CEO.”

The Cons:

  • It’s a slower process. Steps include readying the business for sale, identifying and approaching potential buyers, taking bids, and due diligence.
  • Word could get out. There’s always the chance competitors will hear you’re shopping your business, which can disrupt contract negotiations.

Camilla Cornell is a National Magazine Award-winning business journalist.

This article originally appeared in Canadian Capital.