The decision to buy a business is probably one of the most important ones that you will ever make. Probably the only other decision that is more important is who you will marry.
After buying the business you will be responsible for its success and the well-being and livelihoods of its employees. That’s a lot of responsibility.
While there can be a possible financial reward and some satisfaction, the downside can be the assumption of risk, a loss of freedom, and almost certainly a lifestyle change.
To better understand what are the reasons people buy businesses, Pepperdine Private Capital Markets Project analyzed data from its 2018 Q3 Market Pulse survey. This data is submitted to Pepperdine by business intermediaries, M&A advisors, and other business transaction professionals.
Here are the results.
For businesses in the $5MM- $50MM deal range, the top reasons that buyers purchased a company were a horizontal add-on, vertical add-on, and better ROI than other investments (in that order).
For the $2MM- $5MM range, the top three reasons were better ROI than other investments, horizontal add-on, and vertical add-on (in that order).
For the $1MM- $2MM range, the top reasons were buying a job, better ROI than other investments, and horizontal add-ons (in that order).
In the $500K- $1MM range, the main reasons for purchasing a business were buying a job, horizontal add-on, and vertical add-on (in that order).
For the smaller businesses (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).
As the size of the business gets larger, the most common reasons for purchasing move from personal reasons towards business-oriented reasons. Probably this is because smaller deals often mean an individual purchasing a business to operate as compared to the larger deals that usually are done to grow/enhance an existing business by making an acquisition.
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.
As a business owner, it is imperative that you know what are your goals and how you would like your company to be managed both during the time you own it and after you leave.
