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By Brandon Mack
The International Business Brokers Association (IBBA) and M&A Source have recently published their fourth-quarter market research for 2020. The report is a statistical analysis of 363 respondents who answered this quarter’s 25 question survey. This is the second of a three-part series.
When it comes to buyer type, this quarter is quite unique. Usually, first-time buyers lead many of the ranges; this quarter they only lead the under $500K range. Every other range is led by strategic buyers (existing companies). In the under $500K in valuation range, 42% of the buyers were first-time individuals, 33% were individuals who have owned a business, and 24% were sold to existing companies. In the $500K to $1M range, 32% were sold to first-time individuals, 30% were sold to individuals who have owned a business, and 34% were sold to existing businesses. In the $1M to $2M range, 33% were sold to first-time individuals, 14% were sold to individuals who have owned a business, and 45% were sold to existing businesses. In the $2M to $5M range, 28% were sold to first-time owners, 24% to owners who have owned a business, and 32% were sold to existing companies. Lastly, in the $5M to $50M range, 4% were sold to first-time individuals, 0% were sold to individuals who have owned a business, 50% were sold to existing businesses, and 33% 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 44% of the reasons for the seller to go to market. For businesses between $500K and $1M, retirement makes up 52%. From $1M to $2M, retirement makes up 71%, from $2M to $5M retirement makes up 56%, and from the $5M to $50M range, retirement makes up 67%. Many sellers this quarter are going to market because they found a new opportunity; this makes up 17% of sellers under $500K, 9% of sellers between $500K and $1M, 5% of sellers between $1M and $2M, 5% of sellers between $2M and $5M, and 8% of sellers between $5M and $50M. This quarter, there were many sellers who were burnt out; this makes up 14% of sellers under $500K, 7% of sellers between $500K and $1M, 5% of sellers between $1M and $2M, 24% of sellers between $2M and $5M, and 0% of sellers between $5M and $50M.
Often, the buyers are located within 20 miles of the businesses being sold. For businesses valued under $500K, 63% of the sellers are within 20 miles. In the $500K to $1M range, 45% of the buyers are within 20 miles. In the $1M to $2M range, 26% of the buyers are within 20 miles. In the $2M to $5M range, 24% of the buyers are within 20 miles. Lastly, in the $5M to $50M range, 71% of buyers are located more than 100 miles away, likely representing strategic buyers or PE firms.
Buyers have their own reasons for purchasing a business. Smaller business owners buying themselves a job make up 35% of the under $500K range, 32% of the $500K to $1M range, 26% of the $1M to $2M range, and 24% of the $2M to $5M range. In the under $500K range, add-ons including both horizontal and vertical make up 45%, in the $500K to $1M range add-ons made up 45%, in the $1M to $2M range add-ons make up 57%, in the $2M to $5M range add-ons make up 52%, and in the $5M to $50M range add-ons comprise 67%. This data further shows that a higher percentage of the buyers this quarter are existing companies looking to expand.
