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Types of Buyers

Who actually buys businesses, and why each kind of buyer values yours differently.

The single most important thing to understand before you sell is that there is no one "market price" for your company. The same business is worth wildly different amounts to different buyers. As Warrillow puts it:

"One person's ceiling tile is another person's masterpiece."

Warrillow, The Art of Selling Your Business, ch. 1

Your job is to know which kinds of buyers exist, what each one is really after, and which one will value your business the most. This page sketches the main categories. The deeper comparison lives on Strategic vs Financial Buyers.

The Four Buyer Types​

McDannell sorts buyers into four practical categories, and notes that each one has "different motivations, prices paid, and pitches required."

  • Individual buyers. A person buying themselves a job and a business to run, often financed with an SBA loan or a seller note. They are common for smaller, owner-operated companies, but they need the business to be affordable and bankable.
  • Financial buyers. Private equity groups (PEGs) and similar investors who buy to grow a company and resell it in three to seven years. They bring capital and discipline, but they hunt hard on price.
  • Strategic buyers. A company whose own assets become more valuable by owning yours: market share, cross-sell, new capabilities, or talent (an acquihire). McDannell flags that the strategic buyer pays the most.
  • Industry buyers / competitors. Other businesses in your exact space. They understand you instantly, but they tend to pay the least and, as McDannell warns, "won't pay for goodwill."

Warrillow groups the same landscape into three: the Individual Investor, the Private Equity Group, and the Strategic Acquirer (plus a "hybrid PEG" that rolls up companies in one industry and behaves like a strategic).

Why Strategic Buyers Pay More​

The strategic buyer is the prize because owning you makes their existing business worth more. They are not buying your past profit; they are buying synergy. Warrillow describes the strategic acquirer as something different in kind from an individual or a fund:

"The strategic acquirer is not a person; it's a thing... Unlike other acquirers, a strategic acquirer is—and always will be—in love with their company."

Warrillow, The Art of Selling Your Business, ch. 6

That love is leverage for you. A strategic can justify a higher price because the deal multiplies the value of assets they already own. A financial buyer, by contrast, is solving for return, and a competitor is often solving for the cheapest way to remove a rival. Same company, three very different numbers. See The Strategic Premium for how to claim a sliver of that upside.

Know Why the Buyer Wants You​

Different buyers do not just pay different prices. They also treat your people, your culture, and your promises differently after the close. Burlingham's chapter on knowing your buyer (he calls it caveat venditor, "seller beware") argues that owners are dangerously incurious about the person on the other side of the table.

"Everything you do in business is preparing for the endgame, whether you know it or not. A lot of us don't know it because we are so focused on survival."

Burlingham, Finish Big, ch. 8

He is especially blunt about financial buyers and what happens to the company under them:

"For them, the company is the product. They get their profit when they sell it again, and they do whatever they must to achieve the desired return on their investment."

Burlingham, Finish Big, ch. 8

The practical takeaway: do diligence on your buyer as rigorously as they do on you. The right buyer for the highest price may not be the right buyer for your employees or your legacy. That tension is unpacked in Maximize Price vs Right Fit.

What This Means for You​

Knowing the buyer types changes what you do long before you list. If your most valuable buyer is a strategic, you build and position the company to fit their world. If it is an individual on an SBA loan, you keep it affordable and reduce owner dependence so they can actually run it. The buyer you want determines the business you build. Start by finding the buyer who values what you have most, then build your process to reach them.

Further Reading​

Sources: McDannell, Get Acquired ch.5; Warrillow, The Art of Selling Your Business ch.1, ch.6; Burlingham, Finish Big ch.8