By Brandon Mack
The International Business Brokers Association (IBBA) and M&A Source have recently published their second-quarter market research for 2020. The report is a statistical analysis of 361 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, 45% of the buyers were first-time individuals, 30% were individuals who have owned a business, and 20% were sold to existing companies. In the $500K to $1M range, 42% were sold to first-time individuals, 29% were sold to individuals who have owned a business, and 29% were sold to existing businesses. In the $1M to $2M range, 47% were sold to first-time individuals, 16% were sold to individuals who have owned a business, and 32% were sold to existing businesses. In the $2M to $5M range, 40% were sold to first time owners, 27% to owners who have owned a business, and 20% were sold to existing companies. Lastly, in the $5M to $50M range, 13% were sold to existing businesses, and 67% were sold to PE firms (an increase of 27% this quarter).
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 26% 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 63%, from $2M to $5M retirement makes up 60%, and from the $5M to $50M range, retirement makes up 40%. Many sellers this quarter are going to market because they found a new opportunity; this makes up 20% of sellers under $500K, 8% of sellers between $500K and $1M, 16% of sellers between $1M and $2M, and 13% of sellers between $2M and $5M.
Often, the buyers are located within 20 miles of the businesses being sold. For businesses valued under $500K, 72% of the sellers are within 20 miles. In the $500K to $1M range, 67% of the buyers are within 20 miles. In the $1M to $2M range, 42% of the buyers are within 20 miles. In the $2M to $5M range, 47% of the buyers are within 20 miles. Lastly, in the $5M to $50M range, 67% 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 47% of the under $500K range, 46% of the $500K to $1M range, 37% of the $1M to $2M range, and 27% of the $2M to $5M range. In the under $500K range, add-ons including both horizontal and vertical make up 33%, in the $500K to $1M range add-ons made up 21%, in the $1M to $2M range add-ons make up 37%, in the $2M to $5M range add-ons make up 40%, and in the $5M to $50M range add-ons make up 53%.