By Brandon Mack
The International Business Brokers Association (IBBA) and M&A Source have recently published their first quarter market research for 2020. The report is a statistical analysis of 416 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 the largest category of buyers for companies across the tiers, up through companies valued up to $5M. In the under $500K in valuation range, 51% of the buyers were first-time individuals, 25% were individuals who have owned a business, and 22% were sold to existing companies. In the $500K to $1M range, 48% were sold to first time individuals, 22% were sold to individuals who have owned a business, and 28% were sold to existing businesses. In the $1M to $2M range, 40% were sold to first time individuals, 33% were sold to individuals who have owned a business, and 22% were sold to existing businesses. In the $2M to $5M range, 37% were sold to first time owners, 6% to owners who have owned a business, and 37% were sold to existing companies. Lastly in the $5M to $50M range, 20% were sold to individuals who have owned a business, 40% were sold to existing businesses, and 40% were sold to PE firms.
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 37% of the reasons for the seller to go to market. For businesses between $500K and $1M, retirement makes up 54%. From $1M to $2M, retirement makes up 63%, and from $2M to $5M retirement makes up 66%. The second biggest reason is that the owner is burnt out; in each range in order being burnt out makes up 17%, 6%, 7%, and 14%, respectively. Retirement increased in almost all ranges from Q1 of 2019.
Often, the buyers are located within 20 miles of the businesses being sold. For businesses valued under $500K, 70% of the sellers are within 20 miles. In the $500K to $1M range, 41% of the buyers are within 20 miles. In the $1M to $2M range, 57% of the buyers are within 20 miles. In the $2M to $5M range, 29% of the buyers are within 20 miles, and 31% of the buyers are more than 100 miles away. In the $5M to $50M range, 80% of buyers are located more than 100 miles away, likely representing strategic buyers or PE firms.
Smaller business owners buying themselves a job make up 52% of the under $500K range, 44% of the $500K to $1M range, 43% of the $1M to $2M range, and 23% of the $2M to $5M range. In the $500K to $1M range, add-ons including both horizontal and vertical make up 44%, in the $1M to $2M range add-ons make up 20%, in the $2M to $5M range add-ons make up 43% and in the $5M to $50M range add-ons make up 80%. In comparison to Q1 of 2019, more buyers have been buying themselves a job and there are less add-ons in almost all the ranges.