Question

Why would a strategic acquirer typically be willing to pay more for a company than a private equity firm would?

a) Synergies with existing operations
b) Lower cost of capital
c) Access to different financing options
d) Differing investment horizons

Answer 1

A strategic acquirer is typically willing to pay more for a company than a private equity firm due to synergies with existing operations, access to different financing options, and differing investment horizons.

Step-by-step explanation:

A strategic acquirer is typically willing to pay more for a company than a private equity firm due to several factors:

1. Synergies with existing operations: A strategic acquirer may see value in acquiring a company that complements its existing operations. By integrating the two companies, the acquirer can achieve cost savings and increase revenue through synergies.
2. Access to different financing options: Strategic acquirers often have access to a range of financing options, such as bank loans or lines of credit, which can be obtained at lower costs compared to private equity firms.
3. Differing investment horizons: Strategic acquirers typically have longer investment horizons compared to private equity firms. They are more focused on the long-term growth potential of the company and may be willing to pay a premium to capture those future benefits.