By Brandon Mack
The International Business Brokers Association (IBBA) and M&A Source have recently published their fourth-quarter market research for 2017. The report is a statistical analysis of 264 respondents who answered a 25-question 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.
This quarter, 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, 41% are first-time individual buyers, 34% are individuals who have owned a business, and 21% are exiting companies. In the $500K to $1M range, 24% were sold to first-time individuals, 34% were sold to individuals who have owned a business and 41% were sold to an existing business. In the $1M to $2M range, 35% were sold to first-time individuals, 35% were sold to individuals who have owned a business, and 29% were sold to an existing business. Finally, in the $2M to $5M range, 29% were sold to first-time individuals, 24% were sold to individuals who have owned a business, and 33% were sold to an existing business.
Most of the time, businesses are sold because the owner is retiring. For businesses under $500K, retirement makes up 38% of the reasons for the seller to go to market. For businesses between $500K and $1M, retirement makes up 37%. From $1M to $2M, retirement makes up 55%, and from $2M to $5M retirement makes up 62%. The second biggest reason is that the owner is burnt out; in each range in order being burnt out makes up 20%, 15%, 13%, and 14%, respectively. Furthermore, searching for a new opportunity made up 19% for business valued under $500K and 15% in the $1M to $2M bracket.
Often the buyers are located within 20 miles of the businesses being sold. For businesses valued under $500K, 65% of the sellers are within 20 miles. The closeness of the buyer drops as the value of the business rises. In the $2M to $5M range, only 19% of businesses are sold within 20 miles.
The buyers for businesses sold under $500K are often local, but they are also often buying themselves a job: 41% of the time the buyer is buying their own job. The percentage of people buying their job drops as the price of the business rises. In the $2M to $5M range, only 24% are buying their job and 47% are add-ons to existing businesses. Horizontal add-ons have become popular this quarter representing 26% of the market under $500K, 29% of the $500K to $1M, 19% of the $1M to $2M, and 33% of the $2M to $5M.
