The Pepperdine Private Capital Markets Project and the Graziado School of Business partners with the IBBA and M&A Source to conduct a quarterly survey of business brokers and advisors.
With four years of data in the books, we’ve see some trends move around (hot industries, market confidence) while other metrics (reason for sale) remain fairly consistent. Among those trends that don’t fluctuate much are buyer type and location. Analyzing results for the last 16 quarters, we can see some clear buyer personas emerging:
For companies valued at less than $500,000, most buyers are looking to “buy a job.” These buyers are searching for a modest business that will provide a reasonable annual income and allow them to be their own boss. About 75 percent of these buyers are located within 20 miles of the business for sale.
At this size, buyers are hard to find through any kind of strategic marketing process. Most of the time, the best way to find buyers like these is to work with a business broker (preferably one with industry credentials like the CBI – Certified Business Intermediary) and post a confidential listing to exchange sites like BizBuySell or BizQuest, the two largest business listing services in the U.S.
In the $500,000 to $1 million category, you’re still working with mostly individual buyers, roughly 45 percent first time buyers and 25 percent serial entrepreneurs. These individuals are looking to get out of corporate America and control their own destiny.
Again, confidential online listings are often the best way to find them, or help them find you. Your business broker may also keep a list of registered buyers looking for opportunities like yours.
Now, if there ever was a turkey category that defied consistent trends, the $1 million to $2 million sector is it. At the top end of what the industry considers “Main Street” deals, businesses in this sector will attract some attention from existing companies looking to grow through acquisition.
However, the majority of buyers are still individuals (38 percent first time, 32 percent serial entrepreneurs as of our last survey) and about half will still be sourced from a close geographic area (50 percent within 20 miles).
The $2 million to $5 million category puts us into the lower middle market. Here strategic buyers make up the majority, nearly split between existing businesses and private equity firms. Individual buyers are still viable players here, although these buyers would almost certainly be a high net worth individuals with years of executive leadership experience.
At this size, your broker or M&A advisor should have success reaching out to buyers using a more proactive, targeted marketing strategy. Meanwhile, many individual buyers targeting businesses of this size will have hired a buy-side advisor to assist with their search. Due to current market demand for lower middle market opportunities, many sellers will have several buyers to consider in what could be a competitive bidding environment.
In the $5 million to $50 million sector, businesses have mainly sized out of an individual buyer’s market. More than 80 percent of these buyers will be private equity, family offices, existing companies, or other strategic and financial players.
The majority of these businesses will sell to buyers outside a 100-mile radius, as many strategic buyers will look regionally, if not nationally for their next acquisition.
There are exceptions to every rule of course, but knowing your likely buyer will help you and your advisor maximize efficiency and opportunity in your search.
Chinese philosopher Lao Tzu may have said that “Knowing yourself is enlightenment,” but he also said that “knowing others is wisdom.” In the world of mergers and acquisitions, knowing your likely buyer is the wise way to get your business sold.