Strategic buyers acquire businesses to gain capabilities, products or scale faster than they could build them, and they can sometimes justify higher prices because they expect synergies. Financial buyers such as private equity firms buy companies as investments, typically using significant debt, and plan to sell them later. Sellers are motivated by liquidity, strategic refocusing or the belief that another owner can create more value.
In this lesson you will
- Distinguish strategic buyers from financial buyers and explain how each frames value.
- Explain synergies and why regulators and practitioners treat projected synergies with caution.
- Apply the build, borrow or buy framework to an acquisition decision.
- Describe the role a corporate development function plays in an acquisitive company.
Two kinds of buyers
Almost every acquisition starts with a buyer who believes a business is worth more in its hands than it is today. Who that buyer is shapes how the deal is priced, structured and run. Practitioners usually sort buyers into two groups: strategic buyers and financial buyers.
A strategic buyer is an operating company that wants the target for what it adds to its existing business: a product, a technology, a team, customers or a geographic footprint. The Q3 2026 PitchBook-NVCA Venture Monitor illustrates the pattern: it reports that Salesforce paid $3.6 billion for Fin, which it describes as a customer agent platform with proprietary AI models and technical teams, and that Autodesk acquired MaintainX for $3.6 billion to optimize maintenance and asset management with AI-powered workflows [5].
A financial buyer acquires a company primarily as an investment. The classic example is the leveraged buyout, which Steven Kaplan and Per Strömberg describe as a transaction in which a company is acquired by a specialized investment firm using a relatively small portion of equity and a relatively large portion of outside debt financing [1]. They note that these buyout firms now refer to themselves, and are generally referred to, as private equity firms [1]. Because a financial buyer usually plans to sell the business again, it focuses on cash flow, debt capacity and the eventual exit.
Synergies: the strategic buyer's argument
Synergies are the extra value created by combining two businesses: cost savings from eliminating duplicate functions, revenue gains from cross-selling, or capabilities that neither company could achieve alone. A strategic buyer that expects synergies can, in principle, pay more than a stand-alone investor and still earn an acceptable return. That is why sellers often invite strategic buyers into a process even when financial buyers are also bidding.
Synergy estimates deserve skepticism. The 2023 Merger Guidelines issued by the Justice Department and the Federal Trade Commission state that efficiencies are often speculative and difficult to verify and quantify, and that efficiencies projected by merging firms often are not realized [3]. Those guidelines also say the agencies will credit claimed benefits only if they are merger-specific and verifiable [3]. FTC Chairman Andrew Ferguson announced on February 18, 2025 that the 2023 Merger Guidelines are in effect [4]. A board evaluating an offer, or a buyer setting its own price, should test which synergies are realistic, how long they will take, and what integration will cost.
Build, borrow or buy
An acquisition is only one way to obtain a new capability. Research by Laurence Capron of INSEAD and Will Mitchell frames the choice as building internally, borrowing through alliances and licensing, or buying through acquisition [2]. INSEAD Knowledge reported that in their study of telecommunications firms, only one third actively used more than two methods of obtaining new resources, and about 40 percent relied heavily on just one pathway [2]. The same article warns that over-reliance on acquisitions drains key resources, demotivates teams and fragments the organisation [2].
- Build when the capability is close to what the company already does and time is not critical.
- Borrow, through a partnership or license, when the company needs flexibility or wants to learn before committing.
- Buy when speed matters, when the capability would be hard to develop internally, or when the company needs control of the asset.
Why owners sell
Sellers have their own reasons. Founders and investors in private companies need liquidity, and for venture-backed companies an acquisition is often the most realistic path to it. The Q3 2026 Venture Monitor states that although the market looks to IPOs as the likely exit for fast-growing AI unicorns, M&A has become the preferred, or at least primary, route for liquidity [5]. Larger companies also sell divisions that no longer fit their strategy, and owners of family businesses sell to manage succession. Not every sale happens at a premium: the same report notes that Bending Spoons acquired Airtable and agreed to acquire Miro at significant discounts from their 2021 peak valuations [5].
The corporate development function
In companies that acquire regularly, a corporate development team usually owns this work. It translates corporate strategy into a list of potential targets, builds relationships with those companies over time, evaluates build, borrow and buy alternatives, runs valuation and due diligence with outside advisers, negotiates terms, and hands the business to an integration team after closing. Companies that do not have a dedicated team often rely on outside advisers for the same tasks. Whatever the structure, the core discipline is the same: start from strategy, define what success looks like before signing, and track whether the deal delivers it afterward.
Key terms
- Strategic buyer
- An operating company that acquires a business to strengthen or extend its own operations, products or market position.
- Financial buyer
- An investor, such as a private equity firm, that acquires a company primarily as an investment it expects to sell later.
- Leveraged buyout (LBO)
- An acquisition funded with a relatively small amount of equity and a relatively large amount of debt, typically by a private equity firm.
- Synergies
- Cost savings or revenue gains expected from combining two businesses that neither could achieve alone.
- Merger-specific efficiency
- A benefit that could not be achieved without the merger under review, which is one of the conditions the 2023 Merger Guidelines set for crediting efficiencies.
- Build, borrow or buy
- A framework for choosing whether to develop a capability internally, obtain it through a partnership or license, or acquire it.
- Corporate development
- The internal function that identifies, evaluates, negotiates and helps integrate acquisitions, investments and divestitures.
Check your understanding
Sources
- [1]Journal of Economic Perspectives (American Economic Association), “Leveraged Buyouts and Private Equity,” Winter 2009.
- [2]INSEAD Knowledge, “Corporate Growing Pains: Build, Borrow or Buy?,” November 8, 2012.
- [3]U.S. Department of Justice and Federal Trade Commission, “Merger Guidelines,” December 18, 2023.
- [4]Federal Trade Commission, “FTC Chairman Andrew N. Ferguson Announces that the FTC and DOJ’s Joint 2023 Merger Guidelines Are in Effect,” February 18, 2025.
- [5]PitchBook and National Venture Capital Association, “Q3 2026 PitchBook-NVCA Venture Monitor,” October 2026.
Educational content only — not legal, tax, or investment advice, or an offer to sell or a solicitation of an offer to buy any security. Rules and data are described as of November 2026 and may change. Securities offered through Umergence LLC, Member FINRA/SIPC.