Reference no: EM133061576

This is the question: Why do strategic acquirers propose higher valuations for a target than financial investors?

1) Familiarities with the industry

2) Deal synergies

3) More dry powder available to them during the bid process, allowing them to outbid financial investors

4) None of the above and it is the portion of text from which extrapolate the answer:

Strategic investors' operations and expertise in an industry will inform their approach in a sales process. The perceived synergies between their existing operations and the business to be acquired often entice "strategics" to propose a higher valuation than financial investors. Familiarity with a given industry often reduces the due diligence required on a target, and hence the time and resources spent on it by portfolio company management. However, additional time during the process will be spent on evaluating potential synergies. More time post-signing might be required to file for cartel approval and comply with antitrust regulation. These points together with the lack of M&A resources, as few strategics engage frequently in M&A activity, might limit their ability to execute a transaction quickly.

Strategic investors typically seek a controlling stake (or path to control) when investing in a business, which complicates the sale of minority PE investments. In addition, engaging industry peers in the sales process introduces the risk that competitors gain access to sensitive company information during due diligence. Moreover, management may not support the sale to a strategic investor, given the risk of redundancies post-acquisition.