By Brandon Mack
The International Business Brokers Association (IBBA) and M&A Source recently published their first quarter market research for 2017. The report is a statistical analysis of 315 respondents who answered a 25 question survey. In a three-part series, I will examine the IBBA and M&A Source’s analysis of the market; this is the second part of the series.
This quarter, the IBBA and M&A Source market survey included an interesting statistic: the median percentage of the sale price realized versus the asking price. For instance, under $500K the median business sold for 91% of the asking price. Between $500k and $1M, businesses sold for 96% of the asking price, and in the $1M to $2M dollar range businesses sold for 92% of the asking price. Overall, all the businesses sold for 93% of their asking price – an increase of 3% from Q1 of last year. Of note, this percentage can vary widely depending on the diligence put into determining the correct asking price at the beginning of the process. It doesn’t reflect the number of companies that are not sold due to being mis-priced.
The respondents answered that 50% of businesses under the $500K range were sold to a first time individual, 34% were sold to an individual who has owned a business, and 16% were sold to an existing business. In the $500K to $1M range, the numbers change as expected. 46% were sold to first time individuals, 22% were sold to individuals who have owned a business, 26% were sold to an existing business, and 4% to a private equity firm. Finally, in the $1M to $2M range, 38% were sold to first time individuals, 32% were sold to individuals who have owned a business, 26% were sold to an existing business, and 3% were sold to a private equity firm as an add-on.
Responses for the major reason for the seller to go to market changed slightly this quarter. The percentage of burnt out sellers has decreased from 25% in Q1 of 2016 to 26% in Q1 of 2017. Accordingly, the percentage of retirements has increased to 35% in Q1 of 2017 compared to 31% in Q1 of 2016.
The buyers have also become more local this year with 75% of buyers being located within 20 miles, an increase from last year’s 68%. Reasons for the buyer vary, but 53% are buying themselves a job, 13% found a better return on investment, 8% are vertically adding on, and 17% are horizontally adding on. This year, there has been an increase of 5% in buyers who are buying themselves a job and an increase of 3% in buyers who found a better return on investment.