What are the Top Reasons Why Buyers Purchase a Business?

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What are the Top Reasons Why Buyers Purchase a Business?

The decision to buy a business is not one to be taken lightly. As the owner, you’re responsible for the growth and success of an entire entity and the livelihoods of its employees. It’s a lot of responsibility that can be accompanied by risk, freedom, a lifestyle change and potential financial reward.

To understand exactly what motivates buyers to purchase a business, Pepperdine Private Capital Markets Project (in conjunction with the International Business Brokers Association and M&A Source) analyzed data from its 2018 Q3 Market Pulse survey completed by business intermediaries, M&A advisors, and other business transaction professionals based on their recent deal experiences. Here’s what they found:

In the $5MM- $50MM deal range, the top 3 reasons that buyers purchased a company were horizontal add-on,  vertical add-on and better ROI than other investment (in that order).

In the $2MM- $5MM deal range, the top 3 reasons that buyers purchased a company were better ROI than other investment, horizontal add-on, and vertical add-on (in that order).

In the $1MM- $2MM deal range, the top 3 reasons that buyers purchased a company were buying a job, better ROI than other investment , and horizontal add-on (in that order).

In the $500K- $1MM deal range, the top 3 reasons that buyers purchased a company were buying a job, horizontal add-on , and vertical add-on (in that order).

Finally, for deals less than $500K, the top 3 reasons that buyers purchased a company were buying a job, horizontal add-on , and vertical add-on (in that order).

At a glance, it becomes apparent that as the size of the deal increases, the most common reasons for purchasing stray away from personal and lean towards business reasons.  This is likely correlated to smaller deals often consisting of an individual purchasing a business to operate vs. larger deals often consisting of an existing business making an acquisition to grow.

As a buyer, it is important to enter the market knowing what lifestyle changes you’re looking to create, what you possess knowledge and expertise in, and what your values are. Likewise, as a business owner it is imperative that you’re clear on what your goals are post-sale and how you’d like your company to carry on. In both scenarios, working with a business broker or M&A advisor can make the business transaction experience more successful for you.

To gain insight on these and other current market conditions, contact Luis de la Prida of The NYBB Group. The NYBB Group can be a resource to help business owners determine the marketability and approximate value of their business.

If you would like to discuss this article or schedule a private and complementary consultation, please contact Luis at lou@nybbinc.com or 631-390-9650.

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