By Brandon Mack
The International Business Brokers Association (IBBA) and M&A Source have recently published their third quarter market research for 2018. The report is a statistical analysis of 271 respondents who answered this quarter’s survey. This is the second of a three-part series where I will examine the IBBA’s and M&A Source’s analysis of the market.
The respondents were asked if the buyers were a first-time buyer, an individual who owned a business, an existing company, or a private equity firm. In the under $500K range, 50% of the buyers were first-time individuals. In the $500K to $1M range, 42% were sold to first time individuals, 33% were sold to individuals who have owned a business, and 23% were sold to an existing business. In the $1M to $2M range, 32% were sold to first time individuals, 29% were sold to individuals who have owned a business, and 32% were sold to an existing business. Lastly, in the $2M to $5M range, 26% were sold to first time owners, 37% to owners who have owned a business, and 30% were sold to an existing company. Overall, these percentages are quite similar to last quarter.
Most of the time in the main street and lower middle market, businesses are sold because the owner is retiring. For businesses under $500K, retirement makes up 37% of the reasons for the seller to go to market. For businesses between $500K and $1M, retirement makes up 51%. From $1M to $2M, retirement makes up 52%, and from $2M to $5M retirement makes up 56%. The second biggest reason is that the owner is burnt out; in each range in order being burnt out makes up 23%, 12%, 6%, and 19%. Many businesses are sold because the owner finds a new opportunity; in each range in order finding a new opportunity makes up 11%, 4%, 19%, and 19%.
Often the buyers are located within 20 miles of the businesses being sold. For businesses valued under $500K, 68% of the sellers are within 20 miles. In the $500K to $1M range 70% of the buyers are within 20 miles. In the $1M to $2M range, 52% of the buyers are within 20 miles. Finally, in the $2M to $5M range, 48% of the buyers are within 20 miles, but 37% of the buyers are more than 100 miles away, most likely representing strategic buyers.
Smaller business owners are often buying themselves a job making up 50% of the under $500K range, 39% of the $500K to $1M range, 32% of the $1M to $2M range and 15% of the $2M to $5M range. In the $2M to $5M range, add-ons make up 38%.