Financial Buyer

Unlike strategic buyers, financial buyers usually do not have existing businesses to combine with the target. Instead, they focus on the company's standalone potential, aiming to increase its value through better management, operational improvements, acquisitions and the use of debt.

Financial buyers often use leveraged buyouts, borrowing heavily to fund acquisitions. They typically plan to sell the business within three to seven years, either to a strategic buyer, another financial buyer or public investors.

For example, a private equity firm might buy a family-owned manufacturing company, bring in experienced managers, invest in new equipment, acquire smaller competitors and sell the enlarged business five years later.

Because financial buyers usually cannot achieve the same synergies as strategic buyers, they may be unable to pay as much for a business, although competition for deals and the availability of cheap debt can push their offers higher.

For sellers, financial buyers can offer advantages, such as allowing management to stay in place and retain a stake, and the business often continues to operate independently rather than being merged into another company.