Not All Financial Purchasers Are Created Equal

Not All Financial Purchasers Are Created Equal

When business owners consider selling, the term “financial purchaser” is often synonymous with private equity. But today’s private capital landscape is broader and more nuanced than it was even 10 years ago. The market now includes a spectrum of financial buyers, each with different capital sources, timelines, and strategic priorities.

Traditional private equity usually sources funds from institutional investors such as Alberta’s pension fund AIMCo., British Columbia’s equivalent, BCIMC, or OTPP (Ontario Teachers’ Pension Plan).

Over the last decade, however, alternative private capital sources have become increasingly active in investing in private companies. These various investment groups all approach transactions differently, with distinct ownership philosophies, return thresholds, and investment timelines.

Understanding these differences is critical for sellers looking to maximize value while aligning with the right long-term partner.

Traditional Private Equity (PE)

Traditional private equity funds are the most established and well-understood participants in the private capital landscape. They approach transactions with certainty and highly structured processes, typically acquiring majority positions and layering in leverage to fund their ownership. Their ownership philosophy emphasizes operational efficiencies, cost discipline, and multiple expansion. Return thresholds are rigid, often exceeding twenty-five percent (25%) annualized rates of return, reflecting the expectations of their institutional limited partners. Timelines are usually well defined, with an ultimate exit transaction within five to seven years. From our perspective, these groups bring structure and certainty, but sellers must be ready for aggressive growth targets, formalized governance, a focus on enhancing profitability, and a near-term exit immediately after closing.

High-Net-Worth (HNW) Backed Private Equity

Private equity groups backed by high-net-worth individuals operate with many similarities to traditional PE, but with greater flexibility. They approach transactions with more adaptable deal structures and a relationship-driven lens, often willing to tailor terms to the seller’s situation. Their ownership philosophy balances professional oversight with more personalized engagement, often less rigid than institutions. Return thresholds are still meaningful but come with less formal expectations than those provided to institutional funds. Investment timelines tend to be longer, with less pressure to exit on a fixed schedule. From our most recent dealings, these buyers offer flexibility and smoother transitions, but sellers should expect more hands-on oversight than passive investment.

Search Funds

Search funds are typically formed by entrepreneurial operators seeking to acquire and run a single business. They approach transactions with a strong succession focus, often positioning themselves as the future president. Their ownership philosophy is highly engaged, with the buyer stepping into day-to-day leadership. Return thresholds vary, but given the smaller investor base, they can be inconsistent and sometimes aggressive. Timelines can be uncertain, as funding and capital commitments are assembled on a deal-by-deal basis. We approach this group of buyers with caution. While they can be a good fit in some circumstances, all too often there is a secondary financing transaction and associated risk that comes with this buyer group.

Family Offices

Family offices are increasingly influential buyers, often built around the wealth of successful entrepreneurs or operating companies. They approach transactions with patience and a strong emphasis on cultural alignment, typically avoiding over-leverage. Their ownership philosophy focuses on stewardship, continuity, and legacy preservation rather than short-term gains. Return thresholds are moderate, aiming for steady, sustainable growth rather than outsized quick wins. Investment timelines are long-term, with no fund lifecycle pressures. Generally speaking, these groups are well-capitalized and patient, making them strong partners for sellers prioritizing stability and legacy.

Independent Sponsors

Independent sponsors are individuals or small teams who identify deals first and then raise capital for specific opportunities. They approach transactions entrepreneurially, often customizing structures to attract investors and meet seller needs. Their ownership philosophy blends hands-on operational involvement with the discipline of institutional-style oversight. Return thresholds are typically competitive with other financial buyers, as they must appeal to co-investors. Investment timelines can vary widely depending on the investor base they assemble. From what we have seen, independent sponsors bring creativity and flexibility, but sellers should assess whether their capital base is secure.

Choosing the Right Fit

A wide range of capital sources in today’s market can make every offer look similar on the surface, but the reality is that not all financial purchasers behave the same way. For sellers, understanding these differences is essential to choosing a partner who aligns with their goals.

We help sellers identify the right fit not only in terms of valuation but also across critical non-monetary considerations such as cultural alignment, leadership continuity, employee priorities, and long-term stability. Our role is to build competitive environments that deliver both the right buyer and the right outcome.