Articles

By Brandon Mack

The M&A Source and the International Business Brokers Association (IBBA) recently published the results of their first quarter 2016 Market Pulse Report based on 370 survey respondents.  In this second part of a three part series, we will examine the reasons why a business is sold and who the buyers usually are.

Buyers are often worried about why a business is being sold.  The number one reason for selling a company, for all sizes of businesses, that owners decide to sell their business is retirement.  Other common reasons are being burnt out, having family issues, having health problems, or finding a new opportunity.  In larger businesses, recapitalization is often a reason owners seek to sell.

Next, we will examine the motivations of the buyer, why they buy a business. For businesses valued under $1 million, 40% of the time the buyer is buying a job for themselves.  A horizontal add-on is common across the board, but the most common for business valued between $1 million and $5 million.  A vertical add-on is common for businesses valued over $2 million.  Other buyers are purchasing a business to have a better return on investment than their other investments.

Sellers are often curious on where buyers come from.  In terms of experience, for businesses valued under $500,000, 43% of the time the buyer is an individual buying for the first time, and 40% the buyer is an individual who has previously owned a business.  Business valued over $1 million are often bought by strategic buyers, usually an existing company.  In terms of geography, the buyer, 60% of the time, is within 20 miles for business valued under $1 million.  Businesses valued over $2 million, 50% of the time, the buyer is over 100 miles away, but even for businesses valued over $1 million, 30% of the time the buyer is within 20 miles.