Case 58 / 183 Entry
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Types of Buyers: Strategic, Private Equity, and Family Office

M&A & Deal Analysis

The prompt

“As a junior banker preparing a sell-side pitch, you are tasked with explaining how strategic acquirers, private equity buyers, and family offices differ in their motivations and required returns, and using that framework to estimate the enterprise value each buyer type would realistically offer for a mid-market target.”

📋 What you're given

As a junior banker preparing a sell-side pitch, you are tasked with explaining how strategic acquirers, private equity buyers, and family offices differ in their motivations and required returns, and using that framework to estimate the enterprise value each buyer type would realistically offer for a mid-market target.

1. Task Overview

Task: explain what drives strategic acquirers, private equity buyers, and family offices to pay different prices for the same target, then estimate the enterprise value each would offer.

Step 1: Given Data — Target Company Profile

A mid-market target is being prepped for a sell-side process.

Line ItemValue
Revenue$200.0m
EBITDA$40.0m
EBITDA Margin20.0% (0.20)
Standalone Market EV/EBITDA Multiple8.0x

Step 2: Strategic Acquirer Value

Show Strategic Acquirer EV Formula

Strategic EV = (EBITDA × Standalone Multiple) + (Run-Rate Synergies × Standalone Multiple)

Using this formula, compute the enterprise value a strategic acquirer could justify paying.

Step 3: Private Equity Buyer Value

Show PE Entry EV Formula

Entry EV = Entry Debt + [(Exit EV − Exit Debt) / (1 + Target IRR)^Hold Period]

Using this formula, compute the maximum entry enterprise value a PE buyer can pay.

Step 4: Family Office Value

Show Family Office EV Formula

Family Office EV = EBITDA / Required Return

Assume:

  • Run-rate pre-tax synergies (strategic buyer) = $10.0m/year
  • PE entry leverage = 5.0x EBITDA ($200.0m debt)
  • PE debt paid down to $100.0m by exit (Year 5)
  • PE target equity IRR = 20.0% (0.20) over a 5-year hold
  • Exit multiple = 8.0x EBITDA (same as entry, no multiple expansion)
  • Family office required return = 11.0% (0.11)

Using these inputs, compute the enterprise value each buyer type would offer.

💡 Model answer

Try answering out loud first — then reveal the model answer and compare.

⚠️ Common mistakes

  • Assuming PE will always outbid strategic acquirers because of leverage — leverage boosts the equity return on a given price, but the fund still must clear its target IRR, which usually caps its price below a strategic's synergy-adjusted offer.
  • Modeling synergies as certain and undiscounted — in a real process, bankers risk-adjust and often haircut announced synergy estimates for realization risk before capitalizing them into price.
  • Treating all "financial buyers" as one group — PE funds are IRR-driven with a finite fund life, while family offices deploy patient, evergreen capital with a much lower required return.
  • Confusing a buyer's willingness to pay with the market trading multiple — a PE buyer's maximum entry EV comes from working backward from its exit assumptions and target IRR, not from simply applying the standalone multiple.
  • Ignoring financing mix — strategics often use cash and stock from the balance sheet, PE relies on new leveraged debt, and family offices frequently pay all-cash with little to no leverage, all of which affect what each buyer can afford.

🔁 Follow-up questions

← Previous Case 57: What Is M&A and Why Do Companies Do It? Next Case 59: Accretion/Dilution: The Basic Concept →

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