Business Brokerage/M&A Market Pulse 2Q18 – Part 2 of 3Buying a business For Buyers For Sellers Selling a business Valuation
Posted by Ron Buck on
By Brandon Mack
The International Business Brokers Association (IBBA) and M&A Source has recently published their second quarter market research for 2018. The report is a statistical analysis of 277 respondents who answered a 25-question survey. This is the second of a three-part series where I will examine the IBBA’s and M&A Source’s analysis of the market.
The respondents were asked if the buyers were a first-time buyer, an individual who owned a business, an existing company, or a private equity firm. In the under $500K range, 49% of the buyers were first-time individuals; a decrease of 10% from last year. In the $500K to $1M range, 51% were sold to first time individuals, 29% were sold to individuals who have owned a business, and 15% were sold to an existing business. In the $1M to $2M range, 32% were sold to first time individuals, 29% were sold to individuals who have owned a business, and 32% were sold to an existing business. Lastly, in the $2M to $5M range, 30% were sold to first time owners, 17% to owners who have owned a business, and 33% were sold to an existing company.
Most of the time, businesses are sold because the owner is retiring. For businesses under $500K, retirement makes up 31% of the reasons for the seller to go to market. For businesses between $500K and $1M, retirement makes up 49%. From $1M to $2M, retirement makes up 52%, and from $2M to $5M retirement makes up 57%. The second biggest reason is that the owner is burnt out; in each range in order being burnt out makes up 17%, 17%, 6%, and 10%. In the under $500K range, finding a new opportunity or relocating each make up 15%.
Often the buyers are located within 20 miles of the businesses being sold. For businesses valued under $500K, 70% of the sellers are within 20 miles. In the $500K to $1M range 76% of the buyers are within 20 miles. In the $1M to $2M range, 39% of the buyers are within 20 miles. Finally, in the $2M to $5M range, 40% of the buyers are within 20 miles.
Smaller business owners are often buying themselves a job making up 54% of the under $500K range, 39% of the $500K to $1M range, and 32% of the $1M to $2M range. In the $2M to $5M range, owners buying themselves a job drops to only 5%. In the same range, add-ons make up 50% and discovering the business has a better ROI than another investment makes up 40%.