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Business Brokerage/M&A Market Pulse 1Q20 – Part 2 of 3

Ron Buck

By Brandon Mack

The International Business Brokers Association (IBBA) and M&A Source have recently published their first-quarter market research for 2021. The report is a statistical analysis of 301 respondents who answered this quarter’s 25 question survey. This is the second of a three-part series.

In the under $500K in valuation range, 39% of the buyers were first-time individuals, 34% were individuals who have owned a business, and 25% were sold to existing companies. In the $500K to $1M range, 37% were sold to first-time individuals, 27% were sold to individuals who have owned a business, and 30% were sold to existing businesses. In the $1M to $2M range, 27% were sold to first-time individuals, 29% were sold to individuals who have owned a business, and 28% were sold to existing businesses. In the $2M to $5M range, 36% were sold to first-time owners, 28% to owners who have owned a business, and 24% were sold to existing companies. Lastly, in the $5M to $50M range, 13% were sold to first-time individuals, 7% were sold to individuals who have owned a business, 27% were sold to existing businesses, and 53% 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 47% of the reasons for the seller to go to market. For businesses between $500K and $1M, retirement makes up 48%. From $1M to $2M, retirement makes up 52%, from $2M to $5M retirement makes up 72%, and from the $5M to $50M range, retirement makes up 53%. Many sellers this quarter are going to market because they found a new opportunity; this makes up 10% of sellers under $500K, 15% of sellers between $500K and $1M, 4% of sellers between $1M and $2M, 8% of sellers between $2M and $5M, and 0% of sellers between $5M and $50M. This quarter like last quarter, there were many sellers who were burnt out; this makes up 15% of sellers under $500K, 10% of sellers between $500K and $1M, 15% of sellers between $1M and $2M, 4% of sellers between $2M and $5M, and 27% 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, it’s 42% of the buyers. In the $1M to $2M range, it’s 38% of the buyers. In the $2M to $5M range, i28% of the buyers are within 20 miles. Lastly, in the $5M to $50M range, 80% 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 40% of the under $500K range, 30% of the $500K to $1M range, 27% of the $1M to $2M range, and 28% of the $2M to $5M range. In the under $500K range, add-ons including both horizontal and vertical make up 42%, 39% in the $500K to $1M range, 50% in the $1M to $2M range, 36% in the $2M to $5M range, and 53% in the $5M to $50M range.