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Name 4+ reasons a strategic buyer can pay more for a target than a financial sponsor.
Answer
(1) Synergies (cost + revenue) — sponsors can't realize cost synergies the same way, and revenue synergies don't apply. (2) Lower cost of capital — strategics often have lower WACC than PE hurdle rates. (3) Longer investment horizon — no 5-year exit timeline. (4) Lower return thresholds — public-market shareholders accept lower IRRs than 20%+ PE hurdles. (5) Strategic value beyond financial returns (defensive consolidation, capabilities acquisition).
Why interviewers ask this
This is why auctions often clear at strategic buyer prices and why sponsors target companies where strategics aren't viable buyers. Common interview question: 'In this deal, would a strategic or sponsor pay more?' Apply this framework.
strategic vs sponsor