By Brandon Mack
The International Business Brokers Association (IBBA) and M&A Source have recently published their third quarter market research for 2019. The report is a statistical analysis of 236 respondents who answered this quarter’s 25 question survey. This is the second of a three-part series.
This quarter, first time individual buyers were largest category of buyers for companies across the tiers, up through companies valued up to $5M. In the under $500K in valuation range, 46% of the buyers were first-time individuals, 34% were individuals who have owned a business, and 20% were sold to an existing company. In the $500K to $1M range, 43% were sold to first time individuals, 28% and were sold to individuals who have owned a business, and 30% were sold to an existing business. In the $1M to $2M range, 44% were sold to first time individuals, 26% were sold to individuals who have owned a business, and 21% were sold to an existing business. Lastly, in the $2M to $5M range, 47% were sold to first time owners, 6% to owners who have owned a business, and 41% were sold to an existing company.
In the main street and lower middle market, the number one reason businesses are sold is due to the owner retiring. For businesses under $500K, retirement makes up 32% of the reasons for the seller to go to market. For businesses between $500K and $1M, retirement makes up 50%. From $1M to $2M, retirement makes up 62%, and from $2M to $5M retirement makes up 59%. The second biggest reason is that the owner is burnt out; in each range in order being burnt out makes up 18%, 18%, 15%, and 18%. These percentages are in line with the data from last quarter.
Often, the buyers are located within 20 miles of the businesses being sold. For businesses valued under $500K, 74% of the sellers are within 20 miles. In the $500K to $1M range, 58% of the buyers are within 20 miles. In the $1M to $2M range, 47% of the buyers are within 20 miles. Finally, in the $2M to $5M range, 42% of the buyers are within 20 miles, but 30% of the buyers are more than 100 miles away, likely representing strategic buyers.
Smaller business owners buying themselves a job make up 48% of the under $500K range, 35% of the $500K to $1M range, 32% of the $1M to $2M range and 41% of the $2M to $5M range. In the $1M to $2M, range add-ons including both horizontal and vertical make up 32% and in the $2M to $5M range add-ons make up 47%.