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Who are Special Interest Purchasers?

November 26, 2015

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We have observed, in some instances, businesses being purchased at a premium price. In these cases, we generally consider the premiums are being paid by a special interest purchaser (“special purchaser”).

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Special purchasers generally expect to enjoy incremental economic benefits and synergies upon integration of the purchased business with their own. As such, these special purchasers are willing to pay more than others to reap the unique benefits from combining the businesses. The premium provided from a special purchaser is dependent on a multitude of factors, including:

  • The number of special interest purchasers
  • The level or quantification of economic benefits expected by the special purchaser after acquiring the business. These include:
    • Economies of scale – cost advantages due to size, such as fixed cost or administrative savings
    • Strategic advantages – ability to eliminate competitors, reduce risk, have better market coverage, improve distribution centers, have immediate entry to a market not previously accessible, acquire technology that otherwise needs to be developed and vertical/horizontal integration of businesses
    • Financial synergies – increase purchasing power, reduce cost of sales, lower debt interest rates and diversify products.

The premium paid for a business depends on the level of the economies of scale, synergies or competitive advantage believed to be attainable by the special purchaser. As such, special purchasers are normally competitors, customers or suppliers that might gain particular advantages from ownership not available to ordinary purchasers.





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