Understanding Private Equity vs. Strategic Buyers: Insights from Borgman Capital

In this latest episode of the Transaction Abstract Podcast, Joe Hellman explores the crucial differences between private equity and strategic buyers in mergers and acquisitions, providing valuable insights for business owners considering a sale.

Joe is joined by Ben Axelrod, Managing Director at Borgman Capital, bringing over 20 years of M&A experience. Drawing from his extensive background, Axelrod offers a unique perspective on how different buyer types approach acquisitions and what organizations should consider when evaluating their options.

Understanding Strategic vs. Financial Buyers

The M&A landscape features two primary types of buyers, each with distinct approaches:

• Strategic buyers typically operate within the same industry as their acquisition targets, focusing on operational synergies and long-term integration. Their goal is to create value through combined operations, with no predetermined exit timeline.

• Private equity firms represent financial buyers backed by investors seeking returns on their capital. These firms focus on operational improvements, revenue growth, and margin optimization, typically planning for an exit within five to ten years. 

• Axelrod also introduces "quasi-strategic" buyers: private equity-backed operating companies that bridge these approaches by combining industry expertise with financial backing.

Breaking Private Equity Misconceptions

Common private equity misconceptions often stem from highly publicized negative cases, but the reality is different. Axelrod explains how private equity ownership frequently preserves existing operations and supports management teams, particularly in the lower middle market where Borgman Capital operates.

Unlike strategic buyers, who might consolidate facilities due to operational overlap, private equity firms investing in standalone businesses often maintain existing infrastructure and workforces. This approach promotes sustainable growth rather than immediate cost reduction.

The Private Equity Advantage

Private equity firms can move quickly and adapt to different situations. While strategic buyers, especially larger corporations, might be constrained by board meeting schedules and rigid approval processes, private equity firms can often respond quicker to opportunities.

Axelrod highlights how Borgman Capital balances this speed with thorough due diligence, ensuring both efficient execution and proper evaluation. The firm can deploy resources quickly while maintaining its commitment to careful analysis.

Looking to the Future

The approaching "Great Wealth Transfer" can be beneficial for M&A transactions. As baby boomer business owners prepare for transition, private equity firms are offering more sophisticated approaches that address both financial and operational considerations.

Whether choosing a strategic or financial buyer, owners should find a forward-looking partner whose approach aligns with the organization's objectives. To hear more insights from this informative discussion about the evolving landscape of private equity and strategic acquisitions, listen to the full episode of the Transaction Abstract Podcast.