By Brandon Mack
The International Business Brokers Association (IBBA) and M&A Source have recently published their fourth quarter market research for 2019. The report is a statistical analysis of 300 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, 47% of the buyers were first-time individuals, 33% were individuals who have owned a business, and 20% were sold to an existing company. In the $500K to $1M range, 41% were sold to first time individuals, 31% were sold to individuals who have owned a business, and 25% were sold to an existing business. In the $1M to $2M range, 31% were sold to first time individuals, 23% were sold to individuals who have owned a business, and 36% were sold to an existing business. Lastly, in the $2M to $5M range, 19% were sold to first time owners, 29% to owners who have owned a business, and 29% were sold to an existing company.
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 46% of the reasons for the seller to go to market. For businesses between $500K and $1M, retirement makes up 66%. From $1M to $2M, retirement makes up 56%, and from $2M to $5M retirement makes up 71%. The second biggest reason is that the owner is burnt out; in each range in order being burnt out makes up 17%, 10%, 13%, and 5%, respectively. Retirement has increased in almost all ranges from Q4 of 2018.
Often, the buyers are located within 20 miles of the businesses being sold. For businesses valued under $500K, 67% of the sellers are within 20 miles. In the $500K to $1M range, 63% of the buyers are within 20 miles. In the $1M to $2M range, 46% of the buyers are within 20 miles. Finally, in the $2M to $5M range, 24% of the buyers are within 20 miles, and 48% of the buyers are more than 100 miles away, likely representing strategic buyers.
Smaller business owners buying themselves a job make up 49% of the under $500K range, 37% of the $500K to $1M range, 31% of the $1M to $2M range, and 19% of the $2M to $5M range. In the $1M to $2M range, add-ons including both horizontal and vertical make up 46%, and in the $2M to $5M range add-ons make up 67%. In comparison to Q4 of 2018, there have been more add-ons in almost all the ranges.