Basic, lesson 1 of 3
Why buy: the deal rationale
Every acquisition case starts with why this buyer wants this target. The rationale decides which analysis matters, so name it before you run numbers.
7 min, 2 checks
1Strategic and financial buyers
| Rationale | What the buyer gets | What to test |
|---|---|---|
| Scale in the same business | Cost synergies, pricing power | Overlap in costs, antitrust risk |
| New capability or product | Something slow or hard to build | Build versus buy cost and time |
| New customers or regions | Access to a market | Whether the customers stay after the deal |
| Vertical integration | Control of a supplier or a channel | Whether owning it beats contracting with it |
| Financial return (PE) | Cash flows and a resale in a few years | Growth plan, debt capacity, exit multiple |
A strategic buyer can pay more than a financial buyer because it can earn synergies. A PE buyer pays for the standalone business plus what it can improve on its own.
Check 1
A snack maker wants to buy a regional distributor that delivers to 40,000 convenience stores. What is the main rationale?
2A structure that follows from it
- Rationale: why this buyer, why now.
- Target standalone: market, position, financials.
- Synergies and costs to integrate.
- Price: value to this buyer versus the asking price.
- Risks and alternatives: walk away, partner, or build.
Check 2
A PE fund asks whether to buy a car parts retailer. Which branch matters less than in a strategic deal?
Terms in this lesson: Synergies.
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