Individual Versus Trade Buyers

The Difference That Makes The Difference
Different types of business buyers have different levels of experience and different objectives. A buyer could be a very large business looking to diversify or an investment fund expanding its portfolio. A buyer could also be a smaller business bolting on new products and customers or an individual (or individuals) wanting to own a business for the first time. Each type of buyer has a unique set of advantages and also drawbacks, which greatly impacts on the ultimate sale outcome. Having a good understanding of the differences between trade buyers and individual buyers is very important. Trade buyers are strategic buyers who acquire or purchase an existing business and will evaluate the business from a completely different perspective from the individual buyers.

The individual drivers
Individual buyers comprise of people coming from their ‘normal job’ and their main objective in acquiring a business is replacing their compensation. After their purchase, these individuals will be involved directly in the management and leadership of the business. This category of buyer consist of seasoned business people who are well experienced either in other entrepreneurial ventures or corporate positions. However, unlike trade buyers, individual buyers face capital constraints and will thus buy either a small or medium sized business unless they understand the process of securing a deal for zero cash. Once they take over the business, they will be involved directly with its operations and tend to retain the legacy and brand of the acquired business. This situation is different for trade buyers who eliminate brand and heritage very quickly, sometimes overnight.

Cultural change
Individual buyers do not seek to change the culture and operations of the business and will mostly retain most of the existing aspects of the business including its culture and the employees. Unlike the individual buyers, trade buyers have sufficient financial resources to support the growth and expansion of the company. In this case, most of the existing operations of the business tend to be changed radically to reflect the new aims, goals and objectives of the business. They will thus change the brand of the business to suit their goals, dispose of employees in their efforts of streamlining the entity and radically change the culture of the business.

Customer treatment and retention
Individual buyers have a tendency of treating customers in a much better way while the change brought about by trade buyers to the business does not always favor the customer. Due to these differences, acquisition of businesses by trade buyers and individual buyers varies a lot. This is because these buyers will not only give different offers for the business, but their ultimate plans for the entity and their expected involvement level in the business varies a lot. Knowing this will help ensure you are not disadvantaged during the process of acquiring a business, either as an individual, or as an existing owner-manager looking for bolt-on opportunities.