M&A Fees Explained

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?

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.