Individuals Biggest Buyers Of Small Businesses
Individuals were the largest buyers of businesses worth less than $5 million in the first quarter of this year, according to a new study.
The International Business Brokers Association (IBBA) / M&A Source 2013 Market Pulse Quarterly Survey, conducted by Pepperdine University's Graziadio School of Business and Management, found a significant difference since the third quarter of 2012 when existing companies were the top buyers of deals worth $1 million or more. It was the first time since the survey began in June that individual buyers topped businesses.
The survey looked at businesses sold in the Maint Street market — worth $2 million or less — and lower middle market.
"As the economy picks up steam, more high-net worth individuals are transitioning from employees to business owners," said George Lanza, IBBA chairman and president of Plethora Businesses. "Many of these individuals are buying businesses for job security or because they anticipate a better (return on investment) than with other investments."
The survey found that, for deals valued at $5 million or more, the most common buyers were companies looking to grow through investment (40 percent). Meanwhile, 30 percent of buyers were private equity firms and 20 percent were private equity add-ons. International buyers made a strong appearance in the quarter, with those buyers accounting for 20 to 30 percent of buyers of businesses valued at $1 million or more. Previous reports over the past year hadn't seen international buyers account for more than 8 percent.
Retirement was the top driver of business sales across all sectors for the second quarter in a row.
Business brokers and merger and acquisition advisors said their client rates increased at a faster rate compared to any quarter since the survey began in June 2012. More than 50 percent said they didn't lose a client in the first quarter.
Main Street brokers said they believe it's a buyer's market right now, with 78 percent surveyed saying deals worth less than $500,000 are in the buyer's favor due to supply and demand. Leverage becomes more balanced as the size of the deals grow. Respondents were split evenly in the $2 million to $5 million range. But when the costs are in the $5 million to $50 million range, 65 percent of brokers said the market favors sellers.
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