Who Buys Small Businesses? The Buyer Types and What Each One Pays

Individual buyers

The largest group by count. Often people leaving corporate careers with a severance package or savings, sometimes tradespeople who want to own instead of work for someone, sometimes immigrants investing in a first business. BizBuySell's surveys have consistently shown a large share of buyers describing themselves as former corporate employees.

They buy businesses with under $1 million in SDE, usually well under. They finance with an SBA 7(a) loan for 70 to 90 percent of the price, put in 10 to 20 percent of their own cash, and often ask the seller to carry a note for part of it. They value on SDE because they are buying a job and an income.

They pay market multiples, typically 2 to 3.5 times SDE, and they are sensitive to anything that threatens their ability to make the loan payment: owner dependency, customer concentration, a short lease. They close in 60 to 120 days, driven by the lender's timeline. They are the right buyer for most owner-operated businesses.

Search funds and independent sponsors

A search fund is one or two people, often with business school backgrounds, who raise a small amount of capital from investors to spend two years finding one company to buy and run. Independent sponsors are similar, without the formal fund, raising money deal by deal.

They buy businesses with $500,000 to $3 million in EBITDA, sometimes lower for the right company. They value on EBITDA and pay 4 to 6 times, financed with a mix of SBA or bank debt, investor equity, and often a seller note. They want a management team or the ability to become the manager, and they are thorough in diligence because their investors require it.

They pay well for stable businesses with recurring revenue and growth potential. They are slower than individuals because of the investor process, and they sometimes fail to close because the financing falls through. For a business in the $1 million to $3 million EBITDA range, they are often the best buyer.

Private equity groups

Private equity buys businesses to grow them and sell them again in three to seven years. They buy platforms, larger companies that become the base for an industry roll-up, and add-ons, smaller companies that get merged into an existing platform.

Platform acquisitions usually start at $2 million to $3 million in EBITDA and go up from there. Add-on acquisitions can be much smaller, down to a few hundred thousand in EBITDA, if the company fits a platform they already own. Home services, healthcare practices, insurance agencies, accounting firms, and collision repair have all seen heavy private equity add-on activity.

They pay the highest multiples, 5 to 8 times EBITDA for platforms and often strong prices for add-ons because the platform can absorb the overhead. They pay cash at closing for most of the price, sometimes with an equity rollover where the seller keeps a stake. They close in 60 to 90 days once under LOI. Diligence is thorough, usually including a quality of earnings report.

They value recurring revenue, management teams, and scalability. They discount owner dependency heavily, because they do not intend to run the business themselves.

Strategic acquirers

Companies in the same or an adjacent industry buying to add customers, territory, capabilities, or capacity. A larger HVAC company buying a smaller one for its service contracts. A distributor buying a competitor for its accounts. A manufacturer buying a supplier.

Strategics can pay the most of any buyer because they value what the business is worth to them, not what it is worth on its own. A customer list that a strategic can serve with their existing staff is worth more to them than the earnings suggest. They may not need the owner, the facility, or the back office, which changes the math entirely.

They also pay the least when the fit is weak, and they are sometimes fishing for information about a competitor. Marketing to strategics requires care: a targeted list, an exclusion list of companies the owner does not want to hear about it, and a tight NDA.

They finance from their own balance sheet or bank lines and can close quickly. They are the right buyer for businesses with strong customer relationships, contracts, or capabilities that would take a competitor years to build.

Employees and family

Selling to a key employee or a family member is common and often the owner's first preference. The problem is money. Employees rarely have the down payment, and the deal usually depends on seller financing for most of the price, which means the owner carries the risk for years. SBA loans can help if the employee has some cash and the business qualifies. Family sales raise the same financing problem plus tax and estate questions that need an accountant.

These sales close for less than market on average, because there is no competition and the seller is often motivated by something other than price. That can be the right choice. It should be a choice, made with a market valuation in hand so the owner knows what they are giving up.

How the buyer type changes the process

Individuals respond to marketplace listings and to direct outreach from a buyer database. They need a clear memorandum, a lender-ready package, and patience with the SBA process. The seller should expect a seller note request and a personal relationship with the buyer through transition.

Search funds and private equity respond to direct outreach and to intermediaries they know. They want a management presentation, a data room built to their standards, and often a quality of earnings report. They move in stages: initial interest, indication of interest, management meeting, letter of intent. The seller should expect a longer diligence process and a more detailed purchase agreement, in exchange for more cash at closing.

Strategics respond to a direct approach, ideally through someone they trust. They may already know the business. They move fast when they want it and slow when they are only curious. The seller should expect to control information tightly and to negotiate the non-compete and the treatment of employees carefully.

Employees and family respond to a conversation. The seller should expect to finance most of the price and should get a market valuation first so the decision is made knowingly.

What the buyer will ask about in the first meeting

An individual asks about the owner's hours, the day to day, the employees, and whether the seller will stay to train them. A search fund asks about the management team, the growth plan, and the systems. A private equity group asks about recurring revenue, customer concentration, the add-on pipeline in the region, and whether the owner would roll equity. A strategic asks about the customer list, the pricing, and the key employees, and the seller should be careful how much of that is answered before an LOI.

Knowing the buyer type before the meeting is knowing the questions before they are asked.

Which one is yours

Under $500,000 in SDE and owner-operated: individual buyers, marketed broadly.

$500,000 to $1.5 million in SDE, some management in place: individuals at the low end, search funds and strategics at the high end.

Over $1 million in EBITDA with a management team: search funds, private equity, and strategics, marketed directly and selectively.

Any size with strong contracts or a customer base a competitor would want: strategics, approached with a target list.

The buyer type sets the earnings basis, the multiple range, the financing structure, and the marketing plan. We identify the likely buyer before writing the offering memorandum, because a document written for a private equity group reads differently from one written for a first-time buyer, and each has to answer the questions its reader will ask.