Strategic Buyer – Definition

Cite this article as:"Strategic Buyer – Definition," in The Business Professor, updated September 22, 2019, last accessed October 23, 2020,


Strategic Buyer Definition

A strategic buyer acquires an entirely different company in the same business to get synergies for the whole to become greater than the summation of the parts. An acquirer such as this intends to integrate the purchased entity for extended value-creation, which might include some cost cuts in overlapping areas. Since a strategic buyer expects to derive more value from an acquisition than the intrinsic value of the company being acquired, it would not hesitate paying a premium price so as to close the deal.

A Little More on What is a Strategic Buyer

A strategic buyer refers to a competitor in the same industry as the target. The “strategy” aspect becomes relevant when the acquirer spots an opportunity to expand product lines in the same market, secure extra distribution channels, land in new geographical markets, or generally boost operational efficiencies.

Assume a food manufacturer who has produced processed foods for years wants to kick-start an effort of offering organic products. It assumes the role of a strategic buyer when it gets an organic food company to serve that same market. Post-acquisition, the combined company will benefit from this top-line synergy and also create production, as well as, distribution synergies by increasing the rates of using factories and utilizing the same channels for product delivery to customers.

Throughout the combined firm’s cost structure, the overlapping costs can be removed like redundant factory or external services and office space. Unfortunately, cost synergies influence employees. A huge part of cost savings arises from laying off staff; two CFOs are not needed, selling and marketing staff can be cut down, a layer of mid-level management isn’t necessary anymore. With chances to increase total sales and improve productivity simultaneously, the strategic buyer stands a high chance of converting two plus two into five.

Example of a Strategic Buyer

In a deal which reverberated loudly all over corporate America in 2017, Amazon purchased Whole Foods. Amazon was a strategic buyer of with two solid goals: immediate and far-reaching entry into the grocery business, and a network of brick-and-mortar locations which serve majority of the same customer types shopping online at Amazon. As conceived, it’s anticipated that the value creation from this combination would mainly be seen in the early stages of sales synergies and then seen in sales, as well as, distribution synergies eventually.

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