By Reizchel Oasay and Ron Buck
The International Business Brokers Association (IBBA) and M&A Source have recently published their third-quarter market research for 2021. The report is a statistical analysis of 303 respondents who answered this quarter’s 25 question survey. This is the second of a three-part series.
As for buyer types, in the under $500K in valuation range, 45% of the buyers were first-time individuals, 33% were individuals who owned a business, and 17% were sold to existing companies. In the $500K to $1M range, 33% were sold to first-time individuals, 33% to individuals who owned a business, and 25% were sold to existing businesses. In the $1M to $2M range, 40% were sold to existing companies, 28% were to individuals who owned a business, and 25% were first-time individuals. In the $2M to $5M range, 47% were sold to existing companies, 21% were sold to individuals who owned a business, and 15% were sold to first-time individuals. Lastly, in the $5M to $50M range, 35% were sold to existing companies, 26% were sold to add-on private equity firms, 17% were sold to first-time individuals, and 17% were sold to private equity firms.
Sellers have multiple reasons for selling. For under $500K, 50% was for retirement, 14% for recapitalization, and 13% for health reasons. For the $500K to $1M range, 48% was for retirement and 29% for recapitalization. For the $1M to $2M range, 78% was for retirement, 10% for recapitalization, and 8% for health reasons. For the $2M to $5M range, 62% was for retirement and 12% for recapitalization. And for the $5M to $50M range, 48% was for retirement and 17% recapitalization.
Buyers have their own reasons for purchasing a business. Smaller business owners buying themselves a job made up 38% for under $500K, 33% of the $500K to $1M range, and 18% of the $1M to $2M range. Add-ons, both horizontal and vertical, made up 45% for under $500K, 46% of the $500K to $1M range, 55% of the $1M to $2M range, 50% of the $2M to $5M range, and 65% of the $5M to $50M range. Lastly, 11% under $500K, 15% of the $500K to $1M range, 18% of the $1M to $2M range, 24% of the $2M to $5M range, and 17% of the $5M to $50M range purchased a business due to of having better ROI on buying a business than other investments.
Mostly, buyers are located within 20 miles of the businesses they purchase. Buyers are within 20 miles for the following ranges: 61% from businesses valued under $500K, 63% in the $500K to $1M range, 48% in the $1M to $2M range, 35% in the $2M to $5M range. The percentage of buyers located more than 100 miles away increases significantly to 32% in the $2M to $5M range, and 70% in the $5M to $50M.