How do you even know where to begin sorting out what you should be paying for mergers and acquisitions fees?
What are M&A or investment banking firms considering when quoting you a fee. Mergers and acquisitions fees contain several different parts from the upfront retainer to the success fees. Each influenced by the firm’s expectations on the likelihood of the deal closing and how complex a mergers and acquisitions transaction might be.
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.
In summary, determine how you want your advisor/banker/broker to be motivated. iMerge does not put any emphasis on the mergers and acquisitons fee retainer. Firms that push to be paid a retainer use that money to keep the lights on and pay salaries. This takes the focus off the backend which is to sell your business. There is a significant difference in focusing on the backend and tying the corresponding mergers and acquistions fee to the likelihood a business will actually close for a value that is acceptable to you as the seller.
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