By: Reizchel Oasay and Ron Buck
Understanding the motivations and demographics of buyers and sellers is crucial for navigating the M&A landscape. The latest data from the IBBA and M&A Source provides valuable insights into who’s active in the market and what’s driving their decisions.
Buyer Types Across Price Ranges
The types of buyers vary significantly depending on the price range:
- $500K – $1M: 38% were first-time individuals, 35% were individuals who already own a business, and 23% were existing companies or strategic buyers.
- $1M – $2M: Similar to the lower range, with 50% first-time buyers, 25% individuals already owning a business, and 22% existing business owners.
- $2M – $5M: 39% were existing business owners followed by 33% first-time buyers, and 25% were individuals already owning a business.
- $5M – $50M: Strategic buyers and private equity firms are the leading players, accounting for 37% and 32%, respectively.
Motivations for Buying
Buyers’ motivations are diverse and often depend on their profile:
- Small Business Owners: Many seek to “buy themselves a job” (40% in the $500K-$1M range, 42% in the $1M-$2M range, and 31% in the $2M-$5M).
- Existing Companies: Often looking for horizontal or vertical M&A add-ons to expand their operations (42% in the $500K-$1M range, 39% in the $1M-2M, 45% in the $2M-5M, and 68% in the $5M-$50M range).
- Investors: Seeking a better return on investment than other options (27% in the $2M-$5M range).
Motivations for Selling
Retirement is the primary driver for sellers across all price ranges, but other factors come into play:
- $500K – $1M: Retirement (60%), new opportunities (13%), and burnt out (13%).
- $1M – $2M: Retirement (53%) and new opportunities (17%).
- $2M – $5M: Retirement (67%), health (11%), and new opportunities (11%).
- $5M – $50M: Retirement (74%), and recapitalization (16%).
Key Considerations for Buyers and Sellers
- Buyers: Tailor your approach based on the typical buyer types and motivations in your target price range to help set yourself apart as an ideal candidate in the seller’s eyes.
- Sellers: Understand the most important factors to potential buyers and position your business accordingly. If retirement is your goal, plan carefully for a smooth transition.
In Part 3, we’ll dive into the specifics of deal structures, valuation metrics, and industry trends shaping the M&A landscape in 2024.
