M&A Fees Explainedm&a advisor fees


M&A advisors do not readily advertise mergers and acquisitions m&a fees on their websites.  In fact you would be hard pressed to find any that would pigeonhole a M&A advisor fee percentage to a specific deal size.  It is common knowledge the larger the deal size the smaller the M&A fee.  So why are those M&A fee’s so high in the first place ask many of our clients?

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There are many internal and external factors to M&A firms and mergers acquisitions advisors that impact fees.  One factor that impacts all firms is to recognize not every deal closes.  Reasons are many but a common one is typically when a seller or its shareholders decide not to sell.  Even with the collection of an upfront retainer or work fee ($50k -$250k) these failure to close transactions cause significant losses both in financial and opportunity costs. The top M&A firms do not accept every client that engages them.  To do so would result in providing a poor service due to lack of bandwidth.  So when a transaction does not close the M&A advisory firm has to factor into its success fee the cost of the deals that were turned down.

Additional external factors impacting m&a fees are regulatory and administrative.  Large m&a firms with multiple metropolitan locations worldwide have significant administrative expenses to recover.  In addition, deals involving complex securities require these firms to be registered as broker dealers with the SEC/FINRA adding significant compliance expenses to manage.  It is for this reason these large firms will prefer deal sizes in excess of $100 million in which they can earn several million in fees.  At a minimum these larger firms would expect to earn $2 million in fees.

For mid size firms who operate in the $25 to $75 million range the fees would have to range in the $750k to $2 million range.  The small boutique firms operating in the under $25 million range will seek fees from $200k up to $1 million.

M&A Fees You can Expect to See

In addition to the the retainer or work fee from $50k to $250k, which is sometimes paid as a monthly consulting fee over a period of 4-12 months, you will incur a success fee:

  • Deal Size $1 million to $5 million expect to be quoted a success fee of 12% to 8%
  • Deal Size $5 million to $25 million expect to be quoted a success fee of 7% to 4%
  • Deal Size of $30 million to $100 million expect to be quoted a success fee 4% to 2%

M&A Fees may vary depending on the deal size but for those deals whether its $10 million or $75 million (stay tuned for an article on why smaller deals take  up much more of an M&A advisors time)  to the experienced m&a advisor its only a number in which everything else remains the same in getting your business successfully sold for the highest valuation possible.


What Do you want incentivized when Paying Mergers and Acquisitions Fees?

What is the percentage likelihood your transaction will close?

Paying a large upfront retainer with a small success fee is not motivating the firm to get a deal completed.  If the M&A firm feels your deal has a low percentage chance of closing they will negotiate a higher upfront or monthly retainer.   Many firms will come up to meet your valuation expectations and will be happy to take your retainer.  Be sure you are not influencing them with high valuation expectations.  The higher the percentage chance to close the lower the upfront retainer a firm will take.   

How quickly do you want or need the transaction to close?

A lower upfront retainer could mean less involvement up front which means less time to bring a business to market but creates more work on the back end when a serious buyer expresses interest.  You will be racing to get all the information a buyer has requested and to complete due diligence.  This results in delays and extensions to the LOI (Letter of Intent)  Valuation is a driver of speed to closing.  If you have valuation expectations that are an outlier you should be comfortable with a longer timeline to get your business sold. The most successful transactions are with seller who works with an advisor 2-3 years before marketing his/her business.  Download the 7 Steps to a Successful Exit 

Balancing the retainer to fee ratio?

Surefire closing and a no or low retainer may mean your valuation expectations are too low or the success fee is too high.  Highly complex transactions or flat or low growth companies will have a lower chance of getting value you may desire so the firm may ask for a higher retainer. 


What are your valuation expections?

Many firms will come up to meet your valuation expectations and will be happy to take your retainer.  Be sure you are not influencing them with high valuation numbers.

Merger and Acquisitions Percentages

Fee percentages will range from 10% down to 1%.  Many firms will require the entire fee to be paid in cash at close.  Others will do a paid when paid arrangement.  In other words as you get paid the firm collects the correlating portion.   


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