By Brandon Mack
The International Business Brokers Association (IBBA) and M&A Source have recently published their second quarter market research for 2017. The report is a statistical analysis of 293 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.
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 59% of the buyers were first-time individuals; an increase of 9% from last quarter. In the $500K to $1M range, 52% were sold to first time individuals, 31% were sold to individuals who have owned a business and only 10% were sold to an existing business (a drop of 16%). Finally, in the $1M to $2M range, 24% were sold to first time individuals, 32% were sold to individuals who have owned a business, 20% were sold to an existing business, and 16% were sold to a private equity firm as an add-on.
Most of the time, 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 46%. From $1M to $2M, retirement makes up 32%, and from $2M to $5M retirement makes up 67%. The second biggest reason is that the owner is burnt out; in each range in order being burnt out makes up 20%, 21%, 32%, and 10%.
Often the buyers are located within 20 miles of the businesses being sold. For businesses valued under $500K, 67.5% 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 28.6% 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: 60% 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 19% are buying their job and 47% are add-ons to existing businesses.