Private Equity vs. Strategic Buyers: how increasing competition on the buy-side forces funds to create unprecedented value propositions for business owners

A record $12.8 trillion assets under management (AUM) in private equity in 2022 results in a strong competition on the buy-side across all ticket sizes. To stay ahead of the competition, modern private equity funds had to adapt by creating new value propositions targeting the sellers.

The new generation of private equity emerges more and more as a sophisticated day-to-day business partner with industry know-how and dedicated portfolio management expertise. All of this creates an unprecedented value proposition for business owners.


One of the main benefits of selling to a private equity firm is the flexibility they can offer in deal structures and investment horizons. Unlike strategic buyers, who may have more specific strategic goals and integration plans, private equity firms are often more flexible in how they structure deals. For example, a private equity firm may be willing to offer more favorable terms for the seller, such as allowing them to retain some equity in the company.

Quick process execution

Private equity firms are able to execute deals quickly is that they have a more streamlined decision-making process. Because private equity firms are typically smaller and less bureaucratic than strategic buyers, decisions can be made more quickly and with less red tape. This allows private equity firms to move more quickly through the deal process, from initial due diligence to negotiating and closing the transaction.

Private equity firms also tend to be more focused on the deal itself than strategic buyers. Strategic buyers may have a number of competing priorities and may be less willing to move quickly on a deal if it doesn’t fit within their broader strategic plans. Private equity firms, on the other hand are more motivated to move quickly and efficiently on a deal.

Focus on Growth

Another benefit of selling to a private equity firm is their focus on driving growth and creating value in portfolio companies. Private equity firms typically have a lot of experience in identifying and executing on growth strategies, whether that be expanding into new markets, investing in new products or improving operational efficiency. Because their goal is to generate a strong ROI for their investors, private equity firms are incentivised to help the companies in their portfolio grow and improve. For business owners looking to expand and improve their operations, this can be a big advantage over selling to a strategic buyer, who may not prioritise the same level of growth and value creation.

Retaining Management and Employees

Private equity firms may be more inclined to retain existing management and employees, particularly if they believe that the existing team can help drive growth and create value. This can be a big advantage for business owners who want to ensure that their team is taken care of after the sale. In some cases, private equity firms may even incentivise management and employees with equity or other incentives to help drive growth and create value. Strategic buyers may be more focused on integrating the acquired company into their existing operations, which can lead to more changes in management and employee structures.

Return on Investment

While both strategic buyers and private equity firms aim to generate a return on their investment, private equity firms typically have a more focused approach to value creation and may be better positioned to execute on a specific growth strategy. This can result in a higher return on investment for business owners who sell their companies to private equity firms with a re-participation stake. Private equity firms are typically very focused on generating a strong ROI for their investors, which can lead them to be more proactive and aggressive in driving growth and creating value in portfolio companies.

Maintaining company’s legacy

When a company is acquired, the new owner often has the power to make significant changes to the business. This can include changes to the company’s operations, management and culture. In some cases, this can lead to the destruction of the company’s legacy and the erosion of the brand and reputation that the business has built over time. However, private equity firms have a reputation for being more focused on preserving a company’s legacy and maintaining its culture after a takeover, compared to strategic buyers.

Private equity firms may be more focused on the long-term success of the company than on short-term gains. This means that they are often more willing to invest in the company’s infrastructure and operations, rather than making significant changes to try and achieve quick wins. This can help to preserve the company’s legacy by ensuring that the business continues to operate in the same way it has in the past, while also investing in its future growth and success.

Another factor that may contribute to private equity firms being more inclined to preserve a company’s legacy is their focus on value creation. Private equity firms typically acquire companies with the goal of generating a strong return on investment for their investors. This means that they are more focused on driving growth and creating value in the business, rather than making significant changes that could erode the company’s legacy and reputation. In many cases, preserving the company’s legacy can be a key part of the strategy for creating value, as it can help to maintain customer loyalty and brand recognition.

Finally, private equity firms may be more likely to work collaboratively with the existing management team and employees of the company, rather than imposing their own management and culture on the business. This can help to preserve the existing culture and values of the company, while also ensuring that the management team and employees remain engaged and motivated after the takeover. By retaining the existing management team and employees, private equity firms can also benefit from their knowledge and experience, which can be essential in driving growth and creating value in the business.

Overall, there are always pros and cons when choosing between a financial or strategic investor. However, we see that the private equity paradigm indeed shifts away from a pure valuation proposition for the sellers to a more flexible, growth-driven value proposition”, says Fabian Kröher, Executive Director at Winterberg Group.

Source: Preqin