By Brandon Mack
Recently, the M&A Source and the International Business Brokers Association updated their survey results for the second quarter of 2016; the report included 378 respondents. This is the second part of a three part series where we will examine how the market is changing in terms of buyer types and reasons for buying a company or selling a company.
The market is influenced by the type of people who are buying businesses. Businesses being sold for under $500 thousand are still being sold mostly to a first time individual or an individual who has owned a business. For businesses sold between $500 thousand and $1 million, 1st time owners have dropped from 40% to 30% while private equity firms increased. For businesses sold between $1 and $2 million, the number of strategic buyers has dropped from 41% to 30%.
The reason a business is being sold can vary depending on the circumstances. For businesses sold under $1 million, the number of business sold because of retirement has dropped from 40% to 33%. For businesses sold between $500k and $2 million, the number of business sold because of being burnt out has increased from 12% to 16%.
Buyers usually prefer that the business purchased is located close to them. Overall, in the 2nd quarter the buyers are closer to the business. For businesses sold between $1 and $2 million, the number of businesses sold to a buyer farther than 100 miles has dropped from 38% to 20%. Similarly for business sold between $2 and $5 million, the number of businesses sold to a buyer farther than 100 miles has dropped from 48% to 33%.
Finally, the buyer has a motivation also; the motivation did not change in the second quarter for businesses sold under $500 thousand, with “Buying a job” being the most prevalent reason (51%). The only major change was for businesses sold between $500 thousand and $1 million the number of vertical add-ons has increased from 13% to 25% while having a better ROI than other investments decreased from 21% to 10%. For this size, “Buying a job” remained the number one reason at 35%.