Strategic versus financial buyer

Definition

A competitor who buys for the fit, compared with an investor buying the return.

Why It Matters

A strategic buyer can pay more because the purchase removes a cost or hands it a customer list it already knows how to serve. A financial buyer underwrites the cash flow and the debt it will carry, which is the same arithmetic you are doing on the same numbers.

In numbers: A rival already running the back office can strip $200,000 of overhead on day one, so a price that is 4x your earnings is closer to 3x theirs. That is how it outbids you and still pays less.