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What Is a Trade Buyer?

Alex Newth
Alex Newth

A trade buyer is a term popular in the United Kingdom to refer to a strategic buyer that purchases or acquires an existing business. The trade buyer, by definition, already has a business and usually looks to gain something from taking over the other company. Such benefits could include the combining of the two businesses, effectively squashing competition, or simply finding it easier to buy a company in a certain region than to start a new one when trying to expand. These types of buyers are the most common bidders when it comes to taking over a company.

Trade buyers already own a company but are looking to buy another one. The strategic buyer usually owns a company similar to the one being purchased. For example, someone who owns a food store may buy another food store. A strategic buyer will sometimes purchase a company different from the one already owned, but one that can still benefit the buyer’s original company. In this case, a hardware company may purchase a software company, because the buyer can still gain from this type of purchase.

Man climbing a rope
Man climbing a rope

If the trade buyer is trying to open a new store for his or her chain in a region but there is already a similar store with a large presence in the area, the buyer may attempt to buy the company out. This gives the buyer two advantages. The buyer will not need to compete with the company to build a customer base in that region. The store also is already set up to run an operation similar to the one the trade buyer is looking to establish.

Synergy is usually a reason to acquire a new company. This applies to trade buyers who are buying the same type of business or businesses that could fit with the buyer’s original business. This synergy allows the original company to grow beyond its original boundaries because of the newly acquired resources.

Squashing competition is another reason for acquiring a similar business. If the buyer finds a company that could grow larger than the buyer’s company, the trade buyer will acquire the company so it cannot compete and draw away customers. In addition, the new resources may give the buyer’s company a new area in which to open a store.

When a trade buyer looks at a business to acquire, he or she looks at more than the worth of the company, unlike other types of buyers. Instead, the buyer is looking at how it will benefit his or her existing company. This means the trade buyer will typically be more willing to pay a premium price to acquire the company.

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