The strategic buyer premium is 5%, not 50%

Every owner selling a private company gets the same piece of advice, usually from someone who is not going to be in the room when the offer arrives. Hold out for a strategic buyer. Strategics pay more, because they can see synergies a financial buyer cannot. The number attached to that advice, when anyone attaches one, tends to land between 30 and 50 percent. In the transactions I can actually measure, the gap is about 5 percent.

Here is the number, with its limits first rather than buried at the end. In a cut of 185 transactions in the Felpel Private Company Index, strategic acquirers cleared at a median 10.0 times EV/EBITDA against 9.55 times for financial buyers. That is a premium of roughly 5 percent. It is also the thinnest cut I publish: 185 observations on an EV/EBITDA basis, not the 7,601-transaction EV/SDE core the rest of the index rests on, and the two groups are not matched on deal size, sector or period. Treat it as directional, not as a controlled estimate. I would attack it on exactly those grounds if someone else published it, which is why it carries the caveat on the index page as well as here.

I price private companies for a living, more than a thousand of them, and before that I spent years on the buy side running corporate development at Fortune 500 scale on deals up to roughly $26 billion. I have written the synergy case that justified a premium and I have watched the same case get cut in half by a committee. So the thin cut did not surprise me. What is worth your attention is the part that is not my data at all: the largest well-documented middle-market dataset I can check it against does not merely fail to show a large strategic premium. Right now it shows the premium running backwards.

Where the 50 percent number actually comes from

The belief is not invented. It has real evidence behind it, and the evidence is good. Bargeron, Schlingemann, Stulz and Zutter, in work published through the National Bureau of Economic Research and then in the Journal of Financial Economics, found that target shareholders receive 55 percent more when a public operating firm rather than a private equity fund makes the acquisition. That is the load-bearing citation under every article telling you strategics pay up, even when the article does not know it is citing it.

Read what that study measures. It measures announcement gains to the shareholders of publicly listed targets: companies with a quoted share price, a board with fiduciary duties to public holders, analyst coverage, and a premium measured against a market price that already exists. None of those things are true of a company doing $2 million of EBITDA whose owner is deciding whether to take the offer on the table. The study is not wrong. It is about a different market, and the number has been carried across the boundary without anyone checking whether it survives the trip.

There is a second finding in the same paper that almost never gets quoted, and it is the more interesting one. The authors found the gap disappears when the public bidder has high managerial ownership. Acquisitions by public bidders whose managers own a meaningful stake pay their targets no more than private bidders do. The paper's own reading is that this is about incentives rather than about synergy: managers spending other people's money pay more than managers spending their own. That is a finding about governance, and it has been repackaged for thirty years as a finding about strategic value.

What my own cut shows, and what it does not

Against that, 10.0 times versus 9.55 times looks almost boring. It is a gap of about half a turn of EBITDA. On a company producing $3 million of EBITDA, half a turn is roughly $1.35 million, which is real money and nobody should wave it away. But it is not a different price. It is the same price with a rounding error attached, and it will not survive a single sector or size difference between the two samples.

The honest way to use a sample this size is to ask whether anything independent points the same way. If the only evidence for a small strategic premium were my 185 observations, the responsible conclusion would be that we do not know. That is not the situation.

In the middle market, the premium is currently inverted

Capstone Partners publishes a middle-market M&A outlook that splits purchase multiples by buyer type, which almost nobody else does in public. In its 2026 outlook, published on 17 December 2025 and covering transactions through the third quarter of 2025, private equity sponsors paid an average of 12.0 times EV/EBITDA, private strategic buyers paid 9.8 times, and public strategic buyers paid 8.6 times. Capstone defines the middle market as transactions where enterprise value is undisclosed or below $500 million, which is the band most of this conversation actually happens in.

Sit with the size of that. A public strategic buyer, the exact profile the advice tells you to wait for, paid an average of 8.6 times while a private equity fund paid 12.0 times. That is not a shaved premium, it is a 40 percent discount to the financial buyer. Capstone's own explanation is direct: financial buyers have been driving premium valuations as they outbid strategics to win market share and put committed capital to work. Private equity completed about 45 percent of middle-market transactions as of the third quarter of 2025, near a record.

This is one market in one period and I am not claiming it is a law. Capital deployment pressure ebbs. But it does establish something useful: buyer category is not a stable predictor of price, because the thing that actually sets price is who needs the deal, and that moves with the cycle.

The categories stopped describing the buyers

There is a structural reason the labels have lost their predictive power, and it is not cyclical at all. The two categories have merged.

Capstone reported that add-on acquisitions were 58.2 percent of sponsor activity in 2025. An add-on is a purchase made by a private equity fund that already owns a platform company in the sector. The fund is not buying a standalone investment and modeling a standalone exit. It is buying something that folds into an operating business it controls, and it can take out the duplicate back office, put the target's product through the platform's sales force, and buy inputs at the platform's prices. That is a strategic acquisition. It happens to be executed by a financial buyer.

So when roughly six in ten sponsor deals are add-ons, the sentence "strategics pay more than financial buyers" is comparing a category to a subset of itself. The useful question was never whether the buyer's name has a fund number in it. The useful question is whether this particular buyer already owns something your company plugs into, and whether the economics of that connection are large enough to show up in the price they can justify internally.

When a buyer genuinely does pay up

Premiums are real. They are just not paid for being a strategic. In my experience on both sides of the table, a buyer pays materially above the market multiple for three reasons, and only three.

1. A specific, modellable synergy. Not "there are obvious synergies here", which is what appears in every letter of intent and means nothing. A named line item: your $900,000 of overlapping general and administrative cost disappears into their existing team, or their sales force sells your product into 4,000 accounts you will never reach. If the buyer's analyst cannot put the number in a cell, the committee will not fund it, and the premium does not arrive.

2. A competitive threat. The buyer is not paying for your earnings, it is paying to keep a rival from owning you. This is the most reliable premium in M&A and the least talked about, because no acquirer will ever say it out loud in a diligence call.

3. Scarcity. There are three companies like yours and the buyer needs one this year. Scarcity is the only one of the three that is really about your company rather than about the buyer's situation.

Notice what is missing from that list: the buyer's legal structure. A strategic acquirer with no specific use for your business is a slower financial buyer with more committees and a longer approval chain, and it will price you off the same comparables everyone else uses.

What a seller can actually control

If the buyer's category is mostly noise, what is signal? The number of people bidding. The IBBA and M&A Source Market Pulse survey for the second quarter of 2026, its 57th edition, surveyed 255 business brokers and M&A advisors covering 181 completed transactions, and found that 87 percent of deals above $5 million drew three or more offers and 33 percent drew ten or more. Multiples in the $5 million to $50 million band averaged 5.8 times, the highest reading since the first quarter of 2022.

That is the lever. A seller cannot manufacture a strategic buyer with a real synergy, and waiting for one has a price: the same survey puts lower middle market processes at eleven to twelve months from engagement to close, and Main Street at six to ten. A seller can run a process that puts every plausible acquirer in the same window, and can do the work of identifying which of them has an operating reason to want the company. Then let the bids reveal who has the synergy, instead of guessing from the buyer's letterhead.

One more thing a seller controls, and it matters more than buyer selection: whether the numbers hold up. A premium that is agreed in a letter of intent and then evaporates in diligence was never a premium. That is a different essay, and I have written it, but the short version is that the earnings schedule decides whether the price you negotiated is the price you receive.

What to do with this

If you are selling, stop using buyer category as a pricing assumption. Price your company off what companies like it actually clear at, which for the sub-$5 million online and asset-light businesses in my index is a median of 2.67 times seller's discretionary earnings, with the middle half between 2.0 and 3.4 times. Then run a process wide enough to find out whether anybody has a reason to pay above that. Treat any premium as something a specific buyer might have a specific reason to pay, never as a category discount you are entitled to.

If you are buying, the inverted numbers are a warning rather than a reassurance. Sponsors paying 12.0 times while public strategics pay 8.6 times is what capital deployment pressure looks like in a price, and deployment pressure is not a thesis. Before you clear a bid above the comparable set, write down the synergy in dollars and the year it arrives, and ask whether you would still pay it if the fund had no capital to deploy.

And if you are quoting a strategic premium to anyone, say which study, which population and which period. The 55 percent figure is about public-company takeovers and, on the study's own evidence, is at least partly about the bidder's governance rather than the target's fit. My own data says roughly 5 percent on a thin sample. The best public middle-market split available says the premium is currently negative. Those three statements are all defensible. "Strategics pay 30 to 50 percent more" is not one of them.

Common questions

Do strategic buyers actually pay more than financial buyers?

A little, sometimes, and much less than the advice implies. In a thin cut of 185 transactions in the Felpel Private Company Index, strategic acquirers cleared at a median 10.0 times EV/EBITDA against 9.55 times for financial buyers, a gap of about 5 percent. In the broader middle market the relationship has recently inverted: Capstone Partners reported that private equity sponsors paid an average 12.0 times EV/EBITDA through the third quarter of 2025, while private strategics paid 9.8 times and public strategics 8.6 times. Buyer category is a weak predictor of price.

Why do people believe the strategic premium is 30 to 50 percent?

Because the best evidence for it comes from public-company takeovers, which are a different population. Bargeron, Schlingemann, Stulz and Zutter found that target shareholders receive 55 percent more when a public operating firm rather than a private equity fund makes the acquisition. That study measures announcement gains to shareholders of listed targets, not the multiple paid for a private company with no quoted price. The same paper also found the gap disappears when the public bidder has high managerial ownership, which points at the bidder's incentives rather than at synergy.

What is the difference between a strategic buyer and a financial buyer?

A strategic buyer already operates a business the target fits into, so it can fold in costs, channels or customers. A financial buyer, usually a private equity fund, buys the company as a standalone investment and expects to sell it again. The line has blurred badly: Capstone Partners reported that add-on acquisitions were 58.2 percent of sponsor activity in 2025, and an add-on is a strategic acquisition carried out by a financial buyer, because the sponsor already owns the platform the target plugs into.

How can a seller get a buyer to pay a real premium?

By creating competition and by naming the synergy in the buyer's own numbers. Buyers pay for what they can model, and they pay when someone else might take it. The IBBA and M&A Source Market Pulse survey for the second quarter of 2026 found that 87 percent of deals above $5 million drew three or more offers and 33 percent drew ten or more. The number of credible bidders is something a seller can influence. The buyer's category is not.

Should I wait for a strategic buyer before selling my business?

Not on the strength of the category alone. Waiting has a real cost: the IBBA and M&A Source Market Pulse survey for the second quarter of 2026 put lower middle market processes at eleven to twelve months from engagement to close. Run a process that reaches every plausible buyer, strategic and financial, and let the bids tell you which one has the synergy. A strategic with no specific use for your company is simply a slower financial buyer with a committee.

Related reading

• What acquirers really pay for when they buy your company.
• Is a business worth 3x profit? The honest answer is a range.
• What is SDE, and which add-backs actually survive.
• A letter of intent locks in everything except the price.

Go deeper

If you are weighing an offer and trying to work out whether the premium in front of you is real, let's price the company off the transactions rather than off the buyer's category, or read more of how I think about it.

Tomasz Felpel is an investor, founder, and advisor in private markets and healthcare, based in New York. He is a three-time founder of Value Alpha, an AI-powered private-markets valuation platform, Sonnerie VC, an early-stage healthcare venture firm, and Pond. Previously he led corporate development and M&A at Fortune 500 scale, pricing more than 1,000 private companies. Columbia Business School EMBA. Read the full story.