M&A Market Pulse 4Q24 – Part 2: Buyer & Seller Motivations Driving Deals

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: 43% were individuals already owning a business, 32% were first-time individuals, and 25% were existing companies or strategic buyers.
• $1M – $2M: Similar to the lower range, with 47% first-time buyers, 23% individuals already owning a business, and 21% existing business owners.
• $2M – $5M: 35% were existing business owners followed by 24% were individuals already owning a business, 22% first-time buyers, and 14% private equity firms.
• $5M – $50M: Strategic buyers and private equity firms are the leading players, accounting for 36% and 36%, respectively, and 20% were first-time individuals.

Motivations for Buying

Buyers’ motivations are diverse and often depend on their profile:

• Small Business Owners: Many seek to “buy themselves a job” (38% in the $500K-$1M range, 30% in the $1M-$2M range, 22% in the $2M-$5M range, and 12% in the $5M-$50M range).
• Existing Companies: Often looking for horizontal or vertical M&A add-ons to expand their operations (38% in the $500K-$1M range, 36% in the $1M-2M, 51% in the $2M-5M, and 64% in the $5M-$50M range).
• Investors: Seeking a better return on investment than other options (21% in the $500K-$1M range, 21% in the $1M-2M, 18% in the $2M-5M, and 16% in the $5M-$50M range).

Motivations for Selling

Retirement is the primary driver for sellers across all price ranges, but other factors come into play:

• $500K – $1M: Retirement (65%), and burnt out (13%).
• $1M – $2M: Retirement (56%) and burnt out (14%).
• $2M – $5M: Retirement (71%), and burnt out (10%).
• $5M – $50M: Retirement (56%), new or better opportunity (12%), and burnt out (12%).

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.