Buyers: Who, What & Why

Do you know who is likely to purchase the business you just decided to sell or you received an Engagement Agreement? Are you targeting the appropriate buyers? The Q1 2019 Market Pulse Survey* reveals that, on average, advisors receive about 25 unqualified buyer inquiries per engagement. In order to understand where your marketing dollars are best spent and the likely buyer of this business, you’ll need to understand who the likely buyer is, what industries have greater likelihood of buyers purchasing and why the buyer is buying the business.

Who: Type and Location of Buyer

For those who do end up buying a business, almost half of the businesses sold for <$500,000 were to first time buyers. For those in the $2MM to $5MM purchase price, existing companies were the major buyers.

<$500,000: Buyers in this sector tend to be:

  • First time buyers (49%), serial entrepreneurs (30%), or existing companies (19%)
  • Located within 20 miles (68%) or more than 100 miles (14%) of the seller’s location

$500K-$1MM: Buyers in this sector tend to be:

  • First time buyers (42%), existing companies (33%), serial entrepreneurs (19%)
  • Located within 20 miles (60%) or more than 100 miles (19%) of the seller’s location

$1MM-$2MM: Buyers in this sector tend to be:

  • Existing companies (34%), serial entrepreneurs (34%), or first-time buyers (21%)
  • Located within 20 miles (48%) or within 100 miles (28%) of the seller’s location

$2MM-$5MM: Buyers in this sector tend to be:

  • Existing companies (45%), first time buyers (25%), or serial entrepreneurs (15%)
  • Located within 20 miles (40%) or more than 100 miles (35%) of the seller’s location

What: Top Industries

In the Main Street Market, buyers are primarily buying restaurants and personal services. In $1MM-$2MM purchase price, manufacturing, construction, and engineering are dominating industry transitions, whereas buyers in the $2MM-$5MM range are focused on business services, and the healthcare/biotech industries.

Figure 1: Top Industries by Market Sector

Why:  #1 Motivation

Buy A Job:  Over half (52%) of Buyers who purchased a business for <$500K were buying a job as were just over 1/3 of those in the >$500K-$1MM (35%) and $1MM-$2MM (38%).

Gain Horizontal Add-On:  Half of the buyers who purchased in the $2MM-$5MM (50%) did so to acquire a business operating at the same level of the value chain in a similar or different industry, whereas approximately 1/3 (31%) of those who purchased a $1MM-$2MM business and ¼ of the $500-$1MM.

Figure 2: #1 Motivation for Buyer

Now that you know the likely buyer and their motivation, you can target that buyer. Ideally, this will lead to more qualified inquiries and lesson the number of unqualified buyer inquiries.

*The quarterly IBBA and M&A Source Market Pulse Survey was created to gain an accurate understanding of the market conditions for businesses being sold in Main Street (values $0-$2MM) and the lower middle market (values $2MM -$50MM). The national survey was conducted with the intent of providing a valuable resource to business owners and their advisors. The IBBA and M&A Source present the Market Pulse Survey with the support of the Pepperdine Private Capital Markets Project and the Pepperdine Graziado Business School.

The Q1 2019 survey was completed by 292 business brokers and M&A advisors. Respondents completed 257 transactions this quarter, the 28th edition of this quarterly report.

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