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Scott Bushkie column: Business buyers are found near and far

7:05 PM, Jul. 12, 2013  |  Comments
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Every business owner has an idea in his or her head of what the buyer for their business might look like and where that perfect buyer is going to come from. Some think the buyer will be a competitor down the street. Others think in order to maximize value, they'll have to sell to a firm overseas.

There are no hard and fast rules, of course, but we can look to industry statistics to understand the norms. According to a national study of the mergers and acquisitions industry, where your buyer comes from is largely dependent on the size of your business.

The Q1 Market Pulse report from International Business Brokers Association, M&A Source and Pepperdine University showed that for businesses of less than $1 million in value - what we call a Main Street business - 50 percent of buyers will come from within your city or general vicinity. Another roughly 30 percent will come from your state.

Small-business owners who are seeking a business broker to help them sell their business will want to focus on someone with strong regional ties and a large pool of qualified, local buyers in their network.

On the other hand, if sellers are trying to sell a business on their own (through a site like bizbuysell.com, for example), they can place a higher emphasis on responding to inquiries from regional buyers rather than "tire kickers" from out of state.

For larger businesses of $5 million to $50 million - what we call the lower middle market - the numbers show the exact opposite. In fact, in the Q1 survey, none of the buyers in this segment came from the local area and only 10 percent came from the sellers' home states.

For businesses between $1 million and $5 million the results are more mixed. Generally speaking, the larger your business, the farther you have to look for a buyer.

Perhaps more interesting were the number of international buyers active in Q1. These buyers represented roughly 20 percent of buyers in the $1 million to $5 million segments and 30 percent of buyers in the $5 million to $50 million segment. This is considerably higher than what we've seen in previous quarterly reports, and it will be interesting to see if those trends continue.

As you are looking for an M&A adviser, look for someone well connected where you need them to be. For Main Street businesses, that means strong local and regional ties. Larger businesses need a professional M&A adviser with national, and sometimes international, contacts.

When evaluating advisers, ask for an overview of past buyer locations and/or a geographic breakdown of their registered buyer list. This information can help you determine whether an adviser has the appropriate network to represent you inside or outside of your region.

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