M&A Advisor Fees for Selling a Business

Information about M&A advisor (investment banking) fees for selling a business is surprisingly difficult to find.  I’m not sure why other M&A professionals are so reluctant to discuss fees and even less sure it makes sense in today’s online world. This is a current summary of the fees I’m seeing in the market.

There are no industry surveys or databases on M&A Advisory fees. The only ways I know to get information on fees is: to ask people directly, from similar posts to this one and from comments like the ones below. This is aggregate data that I’ve been accumulating for over a decade.

I hope you’ll share your experiences on fees, or other good references, by commenting below. Alternately, please email me directly – I will keep the source confidential.

Because the data is so sparse, changes in fees over time are even more difficult to accurately determine.

Update 2016

Since the update below in 2014, I’m continuing to see an increase in M&A Advisory fees. At the upper end of the range, success fees for $500 million transactions can now be as high as 4%.

The other significant difference is a dramatic increase in minimum fees (see below.) Minimum fees can now be as high as $5 million. I believe this is primarily driven by the fact that all of the good M&A advisors (investment bankers) are as busy as they want to be in 2016.

Update 2014

As we continue to recover from the mortgage crisis and continue to work in an environment where we have the lowest cost of capital in our lifetimes, I’m seeing two trends in M&A advisory fees over the past few years:

1. An increase in success fees of 1 to 2% (of total transaction size), and

2. “Minimum fees” are becoming more common

It’s Easy to Compare Fees but Much Harder to Compare What You’ll Get

Selecting the best M&A advisor to sell your company is one of the most critically important decisions a CEO or board will make during the company’s entire lifespan. It is also one of the most difficult decisions to make because it’s impossible to do an objective comparison between advisory firms.

For example, the most important criteria to consider when selecting your M&A advisor is the probability that they will actually sell your company. That may seem surprising – but the reality is that the probability of success varies over an almost unbelievable range. There aren’t any hard data or surveys on this, from what I have seen in the industry, the range looks like this:

Probability of Closing

I appreciate how difficult this will be for many people to believe. But I’m convinced that the probability of success varies from around 10% for low quality firms up to 75 or 80% for very high quality firms – and this independent of the company. In other words, if you hire a low quality firm, the chances could be as low as 10% that your company will actually end up being sold.

Also difficult to accept is the effect the firm will have on the price you’ll likely receive, which looks something like this:

M&A Fees and Advisor Quality

Yes, the price you receive could easily vary over a range of plus or minus 50% depending on the quality of the firm you select.

Interestingly, the fees charged (above in light blue) vary over a much smaller range – presumably due to the competitive nature of the M&A advisory industry.

One important thing to keep in mind as you think about fees is the red lines on the graphic above. The red lines are the differences in the amount of cash the shareholders will likely end up with if they select a firm of different qualities.

Please also keep in mind that the amount of money received is a far less important consideration than the first graph above which illustrates the probability that the transaction will actually get completed.

Growth Strategy Consulting, Exit Planning and Mentoring- Included?

Another variable that is very difficult to compare between firms is the amount of Growth Strategy Consulting, Exit Planning, mentoring or coaching that is included in the fee. Some firms are willing to work with the company CEO for many months, and sometimes years, to increase the fundamental value of the business. Other firms believe their job is just to sell the business. These firms don’t include any significant work on helping the management team increase the value before the transaction.

To put this difference in perspective, firms that add a lot to the fundamental value probably invest about two man years of professional time in a typical exit. Firms that are more focus just on the transaction might put in one quarter to one half of that – around one half to one man year of senior time.

When the M&A advisor and the company expect that there will be a considerable amount of professional time applied to increasing the fundamental value of the business, the there’s usually an increase in the fees paid on a monthly basis. Some part of these monthly fees are typically not applied as a prepayment on the success fee.

M&A Advisor Fees and Firm Size

M&A advisor, investment banking and business broker fees increase with the size of the transaction, but not in direct proportion. Part of the reason is that the amount of work required to sell a larger business can actually be less than that to sell a smaller company. Where this becomes especially evident is at the smaller end of the transaction size range.

M&A firms (investment bankers) and business brokers can be categorized by size roughly as:

1. At the upper end of the range there are the big investment banks and accounting firms with multiple teams devoted to M&A.

2. In the middle are mid-sized firms that usually include three to seven professionals, usually called M&A Advisors.

3. At the smaller end of the transaction range, most businesses are sold by smaller firms usually called Business Brokers.

Understanding the pricing mechanisms for M&A fees is easier if you look at it from the perspective of the professionals doing the transactions. Very large firms have offices in downtown towers with human receptionists and assistants. The mid-sized firms have smaller offices in less expensive buildings, use automated phone answering and have no assistants. The individuals in boutique firms answer their own phones.

For a transaction to make sense for the big firms with downtown offices, the total fees have to be several million dollars. For the mid-sized firms, the minimum fee size is in the $500,000 to $1.5 million range. Smaller firms can afford to do exit transactions where the fees are only a few hundred thousand dollars.

Typically, the big firms will compete most aggressively for exit transactions above $100 million because these transactions will produce several million dollars in fees. The $10 to $50 million range is the optimum range for the mid-sized firms. Smaller transactions are usually done by business brokers. These numbers shift up or down depending on how busy the firms are. This post describes the differences between M&A advisors and business brokers in more detail.

Fee Structure

The standard M&A advisor fee model includes a work fee and a success fee.

This is a competitive industry and fee structure are very consistent between firms of similar quality. At the extreme ends of the range there are firms that will undertake engagements with no work fee and also firms that structure their fees entirely on an hourly basis with no success fee. If you see these different fee structures and the reason for the difference is not obvious to you, I suggest you find an Exit Coach or experienced mentor who can help put them in perspective. This post on M&A advisory service quality may also be helpful.

The Lehman Formula, Accelerators and Ideal Fee Alignment

Some M&A firms still base their M&A fees on the Lehman formula. This formula was created by the old Wall Street firm bankrupted by the mortgage crisis. The formula was originally used for financing engagements, but somehow also came to be applied to M&A transactions.

If you think about it for a few minutes, I think it’s pretty obvious that a simple linear percentage creates much better alignment between the M&A advisor and the Shareholders.

The ideal alignment is probably closer to the exact opposite of the Lehman formula. Ideally, the M&A firm would be paid a larger percentage of the last million than the first million. This is often called an “accelerator.” The main reason this is not more popular is the difficulty of accurately predicting the fair value of the company at the time the transaction completes often a year or more later.

For example, think about a situation where the company’s value goes up unexpectedly due to a change in their market, a very large contract or some technical innovation after the M&A engagement is signed. Would it be fair for the M&A advisor to have a much larger fee because of something they had nothing to do with? The converse is also true, perhaps the economy changes, or the business suffers a setback, after signed the engagement. A change in the fee percentage would be equally unfair in that situation. For this reason, almost all M&A fees are straight linear percentages of the final selling price.

M&A Advisor Work Fees, Retainers or Engagement Fees

The selling company commits to a work fee at the beginning of the engagement. Some firms will invoice monthly over the first four to twelve months. This initial fee can also be called a retainer, engagement fee or upfront fee. This covers the M&A advisor’s direct costs during the initial stages, as well as their contribution to the preparation of the selling documents and due diligence materials.

For larger transactions, the work fees are usually $100,000 or more. For boutique firms working on a $20 to 30 million transaction, the work fees are usually in the $50,000 to $75,000 range. At the lower end of the transaction spectrum the work fees don’t usually go below $50,000 because no matter how small the transaction, there is still a fixed amount of early work that has to be done.

There are firms that will charge lower work fees, sometimes in the $30k to $40k range. Lower work fees are often an indication that the firm has people who are not completely busy. For that reason, lower work fees are also more common when the M&A market is not very active.

Interestingly, firms that work on transactions valued under $5 million – usually called “business brokers” often do not charge a work fee.

It’s very unusual for an M&A advisor to undertake an exit transaction without a work fee. Part of the reason is that anyone involved with exits has seen a situation where, at the time of the initial engagement, the shareholders and board are enthusiastic about an exit; but by the time an offer gets to the table the shareholders have reconsidered. This can happen precisely because the M&A advisor has done a good job, and has shown the current shareholders that the company is worth more than they thought. This alone can result in shareholders changing their minds and deciding to continue to own the company for a while longer.

The work fee is a fair way for the professionals to protect their initial investment in helping to facilitate a transaction. It is also a test of how serious the sellers are to actually sell the company.

M&A Advisor Success Fees

Success fees for selling a business in the $10 to 30-million range are typically 6 to 8% of the final value. This means that the M&A firm that successfully completes a $25-million exit transaction will usually be paid a fee at closing of about $1.5 to 2.0 million.

For transactions over $100 million, success fees had been in the 2 to 4% range. This means that a firm executing a $100 million exit will typically receive a success fee in the $2 to 4 million range. For a $500 million exit, fees in the 2000’s were 1% – 2% range, By 2016 fees for transactions as large as $500 million had increased to 3 to 4% (see Update 2016 above).

Where success fees become more challenging is in the smaller size transactions because the amount of work required to sell a $5-million business is not significantly less than the effort required for a $25-million exit.

Please keep in mind that these success fees are for a fully marketed transaction. If the company being sold already knows who the buyer will be, or has it narrowed down to a few prospects, then the success fee should be one half to two thirds of the amounts above.

The success fees above are also typical of gold quality services. Bronze quality success fees are about half and silver are between gold and bronze. More on the different service levels is available in this post.

For a typical transaction in the $20 to 30 million range, the success fees vs M&A service quality and engagement scope looks something like this:


Minimum Fees

In 2014, I’m seeing minimum fees being charged much more often. This clause in the engagement contract specifies the smallest amount the M&A firm will be paid if a transaction is completed.

I find the psychology of minimum fees fascinating. In my experience, most advisors don’t ask themselves what they’re conveying to the customer.

Just think about it. If the discussions between the M&A advisor and their prospective client have been open and realistic, why would the engagement agreement need to include a significant minimum beyond the work fee?

(If you are looking at an M&A engagement agreement and this doesn’t make sense to you yet, I suggest you find an Exit Coach or experienced mentor. You can also post a comment below and I’ll be pleased to help.)

Why Smaller Transactions Are Often More Work Than Larger Ones

Selling a $5-million company can be more difficult than selling a $25-million company. This is because the buyers for smaller companies tend to be either the junior people in the large company acquisition teams, or the CEOs and CFOs of medium-size companies. Similarly, the legal and accounting professionals tend to be less experienced. Combined, these relatively lower experience levels, and reduced availability, means that smaller transactions often require significantly more time and effort from the M&A advisor.

Even the smaller, boutique M&A firms will not usually want to undertake an exit transaction in which the selling price will be less than $ 5 million. Even at a 10% success fee, a $5 million transaction will only deliver a $500,000 success fee. This is approaching the minimum economic size that even the smallest M&A advisory firms can undertake.

This is why transactions below the $5 million threshold are often done by business brokers or individuals who have developed expertise in this area.

Because of the amount of work involved in a $5 million transaction, the success fees are usually in the 10 to 12% range.

While the amount of work required to perform exit transactions is similar whether the company is valued at $5 million or $100 million, the fees for large firmsare higher due to their overhead and perceived prestige.

Other Posts on M&A Fees

These are some of the other good posts on M&A fees:


Please Share Your Data and Links

I’d appreciate hearing from you about your experiences with M&A advisor fees. The only way I have been able to aggregate this information is by asking CEOs, board members, investors and M&A advisors that I meet. If you have a data point you can share, or another good link on M&A fees, please either leave a comment below or email me directly.

76 thoughts on “M&A Advisor Fees for Selling a Business”

  1. Comments from http://www.AngelBlog.net

    FromTechvibes 2 years ago
    Mark Groulx said on Tue, June 23, 2009 at 1:02 PM

    We are in the business brokerage business and I would say your analysis was pretty good. I would say 5% is a rough number for the $5 to 20 million range and then goes down from there. Could be a little more on the low end of the range.

    mhardwicke 1 year ago
    In the UK a commitment fee can be anywhere between £15k-£30k and success fee’s are typically 3% of total deal value.

    Andrea 1 year ago
    question: when you refer to deal value you mean Enterprise value (including debt)?
    advisory work done for trade buyers can contemplate a retainer or commitment fee, however when working for institutional investors (Private Equity, VC etc) this is rarer.
    Sucess fees for southern european deals would be quite lower than the figures you point to. Not more than 2% of EV up to 100m. Smaller deals are harder to do, but do not usually command higher rates.
    Wingedlion and 2 more liked this

    Wingedlion 1 year ago
    From the M/E we see the same sort of level of fees, with monthly retainers ($50-250K pm) which are then set off, subject to a successful conclusion.

  2. Hi Basil,

    What happens if I own the startup company and the company interested in buying my company approaches me? Who pays the M&A consultant fees then, assuming there even IS an third-part M&A person involved?

    I once helped a client write an acquisition proposal, which I’d never done before. It was all very rushed, the proposal had to be written and presented in less than a week. My client wanted to sell his company to another company who worked in the same industry, albeit in a different area of the industry in which they didn’t compete directly. This other client was just starting out into an area of the industry my client was already very established in, so this other client was possibly interest in buying out my client’s business. My client took my proposal and pitched his company directly to the other company without anyone else involved in the pitch. The deal never went through.

    Also what about companies seeking M&As who have their own M&A people internally? Do these people get a percentage of the sale? From what I gather in Dragons Den’s Robert Herjavec’s book “Driven”, AT&T, the company who paid around $70 million for Herjavec’s IT security company during the dot-com boom, didn’t pay their internal M&A people any commission (at least, he doesn’t mention it).

    I’ll quote at length the part of Herjavec’s book about this acquisition as it’s very interesting:

    “People employed in the mergers and acquisitions (M&A) departments of giant corporations fascinate me. They’re all very bright and highly educated, socially secure and well dressed, can mix a great martini, all of that. But I have yet to meet one who has ever started, managed or sold a business … I expected AT&T’s M&A people to work out the usual cluster of ratios and assessments, perhaps questioning me on income estimates, depreciation and other items accountants toss around. Eventually, I assumed, someone would apply a mathematical formula to find my company’s market value and make me a carefully calculated offer.

    But they didn’t. The price that AT&T Canada would be offering, I was informed, would be based not on its book value but on its sales revenue. “We’ll be calculating our offer as a multiple of your annual gross income,” one of the M&A team members told me.

    I wasn’t sure I had heard him correctly. How can you make an offer based on a company’s revenue alone, ignoring all the other aspects of operating a business? …

    It took me a while to realize the answer. The value of my company as a going concern was irrelevant to them. AT&T’s primary concern centered on the scope of our business and the degree of customer satisfaction we were producing, which they could pass along to their customers immediately by purchasing my firm. The move would vault them into a dominant market position where security was concerned, and that was their primary objective. In that light, the time it took to get their money back was not a factor. At least, that’s how it seemed to me …

    I didn’t care about the details (of AT&T’s offer). They were paying me a multiple of our revenue. It didn’t matter what that multiple was; any offer based entirely on revenue would be acceptable to me …

    The team from AT&T Canada submitted their offer. The price was good. In fact, it was VERY good, and I would have been thrilled to accept it. It was more money than I had ever imagined earning in my entire life.

    I turned it down.

    I feared that if I accepted their first offer, they might grow suspicious. I had nothing to hide, but neither did I want AT&T to believe I was anxious for them to take the company off my hands. Besides, I don’t believe in ever accepting the first offer in a negotiation, because rejecting it strengthens your bargaining position. They would raise their offer, I expected, and they did. First, they asked for a counter-offer from me, and I quoted a figure twice the size of theirs.

    I neither hoped nor expected that AT&T would pay that amount, but I believe they would return with a price somewhere in between. They did, and their new offer was comfortably higher than their original one. After some feigned consideration, I agreed to accept the new price, which was substantially more than their first offer ….

    In time the cheque was issued (by AT&T). Was I pleased? Of course I was, in one sense. Yet as much as I acknowledged the impact the deal would have on my family and the personal pride I took In generating a substantial personal net worth, one thought kept running through my mind as I added my signature to the deal: I WISH I HAD ENOUGH MONEY OF MY OWN TO TURN THIS OFFER DOWN”.

    So, Basil, was this type of acquisition merely an example of the buying frenzy during the dotcom boom? Or do you think this type of acquisition can still happen today in a similar way today, especially with fortune 500 companies, and even more so with Fortune 100 companies?

    1. Great questions, BSBMill.

      Who pays the M&A advisor depends on who the M&A advisor is working for. Often, both the buyer and the sellers have their own.

      If an M&A professional is on salary, it’s not unusual that they don’t get a bonus or success fee. In other words, completing a transaction is part of their core job description. On the other hand, they might get paid for a year or more between transactions, so like a lot of things in life – it’s a trade-off.

      I chucked when I read your observation about some of the people who work on the M&A teams in the big companies.

      Great question at the end – and yes that type of acquisition is still happening. In fact, so far in 2011 the M&A markets have been quite buoyant – not frothy like the pre dot-com-boom, but still a very good time to be selling.

      CONGRATULATIONS ON CLOSING YOUR EXIT! That sounds like a well executed negotiation. I hope you do it again.


  3. It’s easier to understand the pricing mechanisms for M and A advisor fees when selling a business if you look at it from the perspective of the professionals doing the transactions.

  4. Hi Basil,

    Any idea what kind of success fee range for a $10-30million exit transaction would be applicable in the Gulf countries (UAE, Qatar, Saudi) ?

    1. Suranjan,

      Thanks for asking.

      While I don’t have direct personal experience in the Gulf countries, I would not expect to see a significant difference from the information above.

      I have noticed some regional variations in some parts of America. These seem to be related to the number of competing M&A Advisory firms in the local area.

      I hope that’s helpful,


  5. The above Advisor Work Fees assumes a properly constructed Business Plan and Budgets are in place as well as Accounting Systems and all share registry and other secretarial files are up to date including Board and members meeting minutes, all Compliance work including; taxation, returns and Capital Gains records; other regulatory corporate returns are up to date and available for review.

    On top of this specialist taxation (CGT) advise to affect restructure in a manner that protects the value of the owners’ and early investors’ interests is required.

    The correcting of these issues is expensive (requiring a multi-disaplinary team) and often attracts fines and penalties

    James E. Nash
    IVM Network (Australia) Pty Ltd

    1. Excellent point, James.

      Yes, the M&A Advisory fees above do NOT include the work required to:

      – write the business description, or
      – build the financial model, or
      – clean up the corporate structure and compliance, or
      – analyze the tax

      The legal work is also not included, of course.

      You are correct that these items can add expense and delay. In some cases, they can even jeopardize the transaction.

      Thanks for your excellent comment.


  6. Gregory Dupuis:

    The APMAA has conducted blind survey’s on fee structure before. Generally, individual advisors are reluctant to discuss fees for many reason; not the least of which it could be considered collusion or price fixing tin he U.S.

  7. H Winston Hines, CBI, BiC

    Gentlemen (and Ladies) of course we have to be cognizant of the Sherman Anti-Trust Act; however, there are just so many structures for compensation that I think that is what Basil was going for not a fixed fee opinion, but a survey of methods of compensation and a discussion of them…by the way the article is very good and thank you!

  8. I am a former CEO that has been asked by a profitable $600 million company to work on retainer to find them several $20 to $100M businesses to acquire. The idea is that I would run these companies once they were acquired. This acquisitions would be financed by a large PE group who is a investor in the parent company. What range of retainer should be expected? Should I expect a success fee? And if so how much?

    1. Excellent question, Mike. Because you might end up running the business you’d acquire, I don’t think you should expect a success fee on the transaction. If it was my money that was financing the acquisition, I would want to see you with a fair and equitable amount of equity in the business post-transaction. IMO your upside should become liquid on the sale of that business, not the purchase.

  9. Thank you for a great post. Do you also happen to know average success rate and closing period (in months) of deals sized between 10 to 100 million dollars? Thanks a million!

    1. Excellent questions, Jin.

      I have been gathering data on success rate for many years. I used to think the average success rate for M&A Advisors was in the 50 to 66% range. As I got more data, I realized that it is closer to 33%. Yes, that is difficult to believe.

      Closing period varies from 6 to 18 months, mostly depending on how ready the company is. My previous record from first contact to money in the bank was 3 months. I helped to close a transaction late last year that was only 63 days. Deals are definitely closing faster.

  10. Dear Basil,
    Your range stops on 100 million so could you kindly advise on what would be the estimated M&A advisor fees for selling a business worth around $400-$500 mln? As I understand from few studies in internet it has to be approximately 1%, isn’t it?

    1. Evgen – When the transaction size gets that large, there will be a considerable amount of negotiation on the fees. It will also depend on how much work is involved in preparing the company. You are in the right range – I’d expect something in the $5 to 10 million range.

  11. Within the Canadian context I have seen vendor advisor contracts that upon success the work fee is converted to a prepayment of the success fee, a deposit as you will.

    A distinction is drawn whether the sale is of assets or shares of the target.

    An asset sale will draw a GST liability. Whereas a successful share sale will be a financial transaction exempt from GST in Canada.

    Shareholders/vendors, if individuals, cannot claim input tax credits to recover the GST. Therefore if the work fee is converted under contract to a prepayment of success fee a savings can be achieved.

    Careful attention to vendor contract terms can yield transaction savings.

    1. Good point on the GST, Derek. In an asset sale, the applicability of GST depends on the specific tax characteristics of the assets and the “Purchase Price Allocation”. We are seeing a lot more asset sales in cross-border transactions as a result of the new rapid depreciation rules in the US.

  12. Great article Basil! I am looking at structuring an engagement fee with a mid size firm targeting an initial small acquistion (approx 5m) and the model proposed is the typical upfront assessment fee, monthly retainer and ultimate success fee. I’ve already identified the target, completed an inital assessement and am very familiar with the industry segment. What I need is someone to undertake a review and ensure there are no missing pieces. How would you suggested altering the standard fee model?

    Also assuming we stick with the traditional upfront, retainer and success fee model – would the upfront and retainer fee be deducted from the success fee or in addition to?

    Appreciate the feedback

    1. Thanks Andrew,

      Assuming the upfront and success fee are in the standard ranges, then most of the time, you’d pay the person who came in to do the review. That type of expense is primary reason there are upfront fees – to cover your out of pocket expenses.

      I believe the upfront and retainer fees should be deducted from the success fee – but lately, in this hot market, I have been noticing some firms quoting them as nondeductible. The important thing for both the firm and the clients is to be absolutely clear.

      Good luck with the engagement!

  13. Basil,

    Very good article. I have been involved in several different size acquisitions/divestitures in my management career. Your ranges are spot on from my experience in the US and Europe. Usually, the fees are proposed much higher but after some negotiating and wrangling, they consistently seem to end up within the ballpark of those mentioned in your article.

    I have been approached by a family business to join their firm and prep their finance and operations groups for a sale of the business. The company has been growing rapidly and is managed by “home grown” talent with no experience in any of the prerequisites which would need to be in place for a buyer to be comfortable (strategic plan, ERP system, best practices, internal controls, treasury management, job descriptions, employee handbook, risk management, etc.). They have been very successful but very loosely run so they could probably be much more profitable than they currently are. Rough exit price is probably around $50-75MM in 12 months time at potentially a 6x EBITDA multiple. Have you seen situations where an in-house C-level executive is paid a success fee on exit? If so, what has that looked like in your experience? It seems like that would align both the executive’s goals with the owner’s goals. What are your thoughts?

    Thanks for any insights and thanks for opening a great discussion on this topic.

    All the best,

    1. Bryan,

      Thanks very much for your input.

      The situation you describe is very familiar – especially today as the boomer generation prepares to retire.

      The most common method to do this is to structure an equity, or pseudo-equity, element in your contract.

      Depending on the corporate and tax laws in your location, it may not be necessary to actually alter the share register to accomplish this. A contract to pay you a fixed percentage at the time of a liquidity event should be just as effective.

      The challenge, of course, is to agree on a percentage. If you can actually increase the fundamental value as you suggest, and exit about a year from now, then I think something in the range of 2 to 3% is not unreasonable. This is based on my understanding that you will increase the sales price by 10 to 20% by executing on your operational changes above.

      I hope this helps. Good luck with your negotiations and the exit!


  14. Great insight Basil.

    In building our database of private companies that have been sold to public strategic acquirers we have developed data on transaction fees, legal, accounting and valuation fees of several hundred of the transactions. The range of fees paid is surprising. If anyone is interested in this data, please contact us.

    If your mid size business owners are looking for top prices paid for private companies and who is buying whom, then visit http://www.Private2IPO.com which provides data and names on recent sales of private companies.

  15. Hi Basil,

    How does the success fee work (from the sell-side advisory point of view), if the purchase price is being paid in private stock of the buyer? I want to pay the advisor in the same currency I am getting for the company (i.e. won’t have the cash to pay the fee if I sell for private stock). How do I pay my advisor in stock of options in a way that provides the full value of the fee to my advisor without triggering a tax for him b4 he is able to liquidate for cash?


    1. Excellent question, Mark.

      Not all M&A Advisors will agree, but I believe your advisor should be paid in the same form, and with the same timing as the shareholders. In part for the point you make about cash, but also because it maximizes alignment between the shareholders and the advisor.

      Your point on tax is not as easy to answer. I’ve seen a few innovative tax strategies used to defer the tax but they were situation, and jurisdiction, dependent.

      1. Thanks Basil. Agree with you on aligning objectives. Just struggling with the tax issue. Unfair for him to have to pay taxes on private stock for successfully helping us with a transaction and then have the risk of being underwater for providing a valuable service.

  16. I think this is a very interesting discussion. The fees you mention seem to be on the high side for Europe. I believe in situations where the advisor has a clear edge (not just a good reputation or network) they might be reached.

    Success fee schemes where the percentage increases if the sales value becomes higher are often suggested. I used this both while I still worked at a large investment bank as in my current practice at B2CF. Although I firmly believe that such schemes are the right way to go to push your advisor to go the extra mile, the problem for many clients is that they sometimes feel that if the price ends up above the high thresholds that this is not the work of the advisor but just general market movement or a wrong initial assessment and when the fees become very large this becomes difficult to swallow when they see it on paper.

    One additional element to fee levels is whether a longer term relationship exists or can be created. By using the same advisor you might save the advisor some marketing cost and/or time getting familiar with your company’s situation. Good advisors will value such relationship and will be willing to quote sharper prices.

    Finally, some key elements determining pricing are:
    – Type and reputation of buyer
    – Has the Seller received many approaches from potential buyers
    – Attractiveness of the asset
    – Has the company been for sale before

    1. Eric, thanks for contributing your perspective on success fees in Europe.

      I agree with your point about formulas where the success fee percentage increases above a certain valuation. The intention has merit, but the implementation is fraught with problems. Just one reason is the one you mention – price change from the start of the engagement to the exit that is not the result of the M&A Advisor’s work. Market changes can affect prices, but also how would the shareholders feel if management did something to significantly increase the value post engagement. Would it be fair to enrich the M&A Advisor in that situation?

  17. I have a related question. I am selling my company now and a friend introduced me to an investment bank that he knew was purchasing assets in my industry. He insists on not taking any compensation for the “favor” but it got the deal done in record time for roughly $10m
    Is there an industry standard or range for introducing deals or finders fee that I can compensate him?
    thanks in advance!

    1. Excellent question, Mark. Congratulations on getting the deal done!

      In the M&A industry, there are reasonably consistent ranges paid by one advisory firm to another for introductions that lead to a completed transaction. They are usually calculated as a percentage of the success fees. So that’s not a very helpful way to answer your question.

      In your case, it’s difficult for me to be more specific because I don’t know the details of your transaction. My rough suggestion is somewhere in the 0.5% to 1% of the transaction range – around $50,000 to $100,000. I hope that’s helpful.

  18. Hi, it is also worth mentioning that incentive fees are more common place in the industry now (based on my professional experience). For instance, if we achieve a business sale above an agreed fair value then we get a larger % of the additional increment. E.g. say 3% of £10m, then 10% of £2m if the business sold for £12m and was valued for £10m. In my experience it aligns incentives better than a straight fee or Lehman formula, which doesn’t encourage vendor advisers to seek additional value as aggressively as a structure with incentive fees. http://www.businessforsalefinder.com

    1. I’m also hearing about more discussions on incentive fees, James. The challenge, in my opinion, is setting the value that the accelerated incentive starts to apply. In your example, agreeing on the £10m valuation.

      For companies with several years of steadily increasing EBITDA, this can be done. The difficulty is when it’s not as easy to determine the fair value at the outset of the engagement.

      Consider a scenario where the company has some good fortune and the value increases unexpectedly after signing the M&A engagement. This could be due to a change in the business, or a change in the micro market for similar companies. In my experience, I’ve seen +/- 50% value changes during the M&A engagement quite often. In this situation, the value change was not a result of the work of the M&A team.

      In these cases, I believe it’s more equitable if the change in the M&A fees is in a 1:1 proportion to the unexpected change in the company value. To me this seems to create the best alignment between the M&A advisor and company shareholders.

  19. Is the buyer or the seller that pays the success fee as my business was contacted by a M & A company that is working with an investor looking buy profitable companies in Edmonton, Canada

  20. Basil, what a helpful post and thanks for all your previous responses; they were helpful to read through.

    I have a similar question to those that have already been posed: I’m currently working at a lower middle market PE shop and have a buddy with a $100M TEV business he’s looking to sell. He hired a broker a year ago, and 2 weeks before closing the deal fell through. He isn’t ready to hire another broker to repeat the process, and has asked if I know anyone who would be interested in buying (my fund is not for LP agreement reasons). I think another buddy and I would have capacity to run the deal on the side, and I’ve gotten familiar enough with the sell-side process that I could at least make a decent run at it. My 2 questions are (1) how long is an appropriate amount of time to wait before the company tries to sell again, and (2) assuming I play the traditional advisory role of creating a CIM, shopping the deal, and running the process, would that still warrant a 2% fee? Thanks in advance.

    1. Interesting situation, Drew.

      There’s no magic period before restarting a process. I think the most important consideration is whether the CEO has recovered from the previous attempt.

      If the first M&A advisor did good quality work getting the company ready and preparing the CIM, you might agree on a reduced success fee. Perhaps a 15 to 20% discount to the market fees above.

  21. I am about to sell my company in the 50-100 million range.
    I know and have relationships with the two buyers most likely to put in the highest bid.
    But don’t want to leave anything on the table by failing to solicit 15 other likely interested bidders.
    Having trouble reconciling a million++ dollar fee for putting a book together and contacting the buyers.

    Are there lower standard success fees for some industries?

    1. John – thank you for asking this critically important question.

      While I admit that it’s very difficult to prove, in my experience the difference is that a really good M&A advisor will get the shareholders at least several, and possibly, many millions more for the company.

      I’ve tried to illustrate this in the graph above.

      I’m happy to elaborate on a call if you’re seriously considering doing this without professional input.

  22. Basil, We’re in your business but in the U.S. We occasionally run into the situation where the owner has a relationship with a prospective buyer and thus considers that he’s already done at least part of our job for us. We try to take a fair look at the situation. If it’s just a situation where one owner is talking to another over drinks and says “Let me know if you ever want to sell” that’s not worth a lot, but if there’s really something substantive there with an NDA in place and maybe even a term sheet, we’ll offer a specific discount if “their” buyer is eventually the successful one in the process. As you know, pricing can vary greatly from buyer to buyer and to date the seller’s buyer has never come through with the best deal and the other buyers have been the ones to submit the winning bids. Beauty is in the eye of the beholder and the range of pricing in buyer proposals can be truly amazing to our clients. It may be hard for some to believe that one buyer may be willing to pay double what another will pay but it happens. With that variability, we don’t mind betting that one of the other buyers will be the winner and we’ll collect our full fee. Someday I imagine the seller will win the bet and get the discounted success fee. We’ll still buy the champagne if he wins.

    1. Perry, this comes up all the time in our business.

      I agree with you that a comment over a drink really shouldn’t affect the final success fee.

      We often offer a lower success fee if the engagement is limited to a few, predetermined prospective buyers. That’s fair because there is much less work involved in that situation compared to a fully marketed transaction. The differences in fees are shown in the table above.

      I feel strongly that it is not advisable to create a situation where the success fee changes depending on which buyer is ultimately successful. The reason is that it creates a misalignment between the company and the M&A advisor. Even if the advisor was the most ethical firm imaginable, I feel strongly it’s just a bad practice to create a situation where the advisor receives a different fee depending on who the buyer is. The advisor should be neutral and only motivated by which buyer is the best for the owners and the company.

  23. Hi Basil,

    I appreciate the insight you’ve provided in this article. It has been valuable information.

    I work as a wealth adviser at a registered investment advisory firm. My client has built a successful healthcare services company and is now interested in selling his business. He asked me to do due diligence on the M&A industry and then introduce him to a number of high quality M&A advisers. From there, he wants my assistance in determining the appropriate adviser to hire. My client suggested that he compensate me a certain percentage based on the final sale price of the deal. However, as an adviser at an RIA firm, I am prohibited from being compensated on transaction based business. Do you have any thoughts on a prudent compensation structure that will compensate me for my time and the value I provide my client, as well as abide by the SEC guidelines?

    1. Hi Noah, this situation comes up frequently and it sounds to me like you’d add value to the M&A process. I’ve seen this accomplished in a couple of different ways, depending on the circumstances. But this is a legal question and I think you’d need to get some good legal advice to ensure you were on the right side of the SEC regs.

  24. Hello Basil,

    Yes I agree with all the others postings; helpful information. Definitely also “conforms” to what I’ve seen and been told by the I-Bankers/ “Finders” I know, etc.

    So here’s an interesting scenario I’d enjoy hearing your thoughts on, if you’d be so kind?

    The fairly short summary of what I do is build companies, launching, growing and turning them around. Mostly tech including telecom, Internet and also Medtech like medical devices, but also “low tech”. It even includes a few non and not for profits with one effort even seeing us impact National Policy after we managed to secure an impressively large roster of majo names, trade groups, federal agencies and key offices from the Hill and also the White House, in a pivotal “Closed Door Roundtable” in Washington DC. Dee Hock Founder of VISA was the biggest private sector “relative legend” involved of plenty more.

    At last proper count my turnarounds were nearing 10 and I’ve both launched and also grown more, so I’ve learned one or two things after these decades doing so. I hope.

    So with this framing in mind, one turn around I drove over a decade ago, was a company that had not ever sold more than$5MM in a year. However, as they were a very compelling “sleepe” in Medtech with a very “rich vein” of untapped Intellectual Property, that was already helping save lives and improve outcomes, plus folks like Paul Allen had very nearly invested (I saw a copy of the Biz Plan he wrote on saying “yes”, but then his aunt had a stroke AND Paul found himself inmmersed buying another Pro Sports Team) but the Chair of Genentech (one of the two huge wins helping make Kleiner Perkins a legend on Sand Hill, of course) and also Chair of Apple had invested…
    …I dove in. When I drive turnarounds I usually become an officer as most seasoned turnaround experts often expect to see, of course, for a plethora of good reasons. Scary ones, too.
    I was able to drive a number of transactions with three into the multiple millions, with a wide range of players including a then $2.5B now $5B global leader in their segment, plus two more from two other billon plus leaders from their respective segments and even an investing Presidenr and COO recruit. In total there was over $16MM invested, plus I even manage to get half of it done non-dilutive with two other chunks sales of a business unit and also a building. I also drove a Series A bringing in a local very highly regarded Super Angel and Philanthropist, among others. I re shaped the board, brought in new legal counsel, a new CFO and more, plus helped them get to operating profit for the first time in over 14 years since their launch. Best of all I got the company to a going concern status, which I tested first by bringing a Top 4 CPA firm who, when they left within hours of starting said and I quote, “we were not here…” Alright I suppose on the list of best of all was getting the CEOs house of out from under collateral to a constantly near $1MM bank debt, for the first time in over a decade. His marriage was surely helped, among more.

    The list goes on like my more recently driving a JV signing to spin out more awards wining companies (I revisited them again nearly five years ago after a key patent finally got issued, to launch and spin out their first medical device company NEWCO, getting that to multiple awards winning status prior to recruiting the ongoing CEO who as she joined told the spinout parent and I quote “this will make my career” and it has now, plus on the list of others I recruited for that spinout was a recent President of the leading National Trade group BIO, a U.S. Presidentially Appointed Admiral for the Board I’ve tapped for key Board roles since the 90s, etc) from them, further leveraging their rich IP portfolio with a “directly leverage-able cost basis” “valuation” of $200MM+ (due how FDA clearance works for medical devices), with two or three “respectable odds” target exits for some of the IP and/ or resulting NEWCOs re same, anticipated to be from $100MM+ to “decent” odds for two of them possibly hitting $500MM or more. With luck we think there may well be one north of $1B. One key comp had Medtronic invest to their biz plan calling for a roughly $3.5B exit, so we think we’re solidly hedged.

    There is more but with this robust summary in mind, what might be your thoughts on fees/ compensation for such work? Note all but the first medical device spinout and the JV signing on the IP, we’re done starting over a decade ago and all happened in a very intense, no vacations and few weekends off, 18 months or so.

    I very much look forward to your thoughts and again, Thank You for your great postings here.


    Steve Marzocco

    1. Steve, it sounds like you’ve done some excellent and very valuable work.

      In my experience, it’s very difficult to know what the fair fee is in this type of situation.

      I think the most equitable way to do it would be to agree on a percentage of the increase in the shareholder value. The only challenge with that is how to measure it at the beginning and the end. And without a transaction, there’s not usually a way to make the payment at the end.

      Some professionals simply charge for this by the hour or by the month. That may even be fair if the increase in value is modest.

      Perhaps the best trade-off is a mix of current cash comp and equity or pseudo-equity.

      Sorry I can’t be more specific.

  25. Well written, informative article, thanks.
    Of course M&A advisor faces numerous of fees and their size depends on the size of the company that participates in the process. Typically, it is possible to make the process easier by using a virtual data room for this. All the transactions will be performed many times faster than it was before and this will give an opportunity to make the process more accessible for all the parties.

  26. Dear Basil, I’m about to sell my company in the 10 -15 mil$ range. 2 years ago I signed a contract with a M&A adviser, and agreed about some work fees and a success fee. For 18 months we had no success in finding a buyer. 6 months ago I’ve been approached directly by a business partner who expressed his interest in buying my business. We had some negotiation rounds and now we are finalizing the commercial conditions. During negotiation process with the buyer my M&A adviser was not involved at all. I’m wondering if I should pay a success fee to my M&A adviser or not. Thanks in advance.

    1. Alexander,

      Since you’ve signed an agreement, it’s not as much about what’s fair as it is about what’s in the contract. In most M&A advisory agreements, you would have to pay the success fee if the transaction happened within the “tail period.”

      This is definitely something you should ask your lawyer.

  27. Basil, very nice overview for folks. Some great points about the difficulty involved in completing smaller deals, which admittedly some of my colleagues still fail to get.

    Anyhow, I came across your site/post when looking for a simple Lehman Fee calculator (which I never found). While the calculation is obviously not that difficult (especially if you just remember that it is $150k for first $5m plus 1% of the balance or $200k for the first $10m TEV + 1% of balance), I had some time to kill one evening and created an online Lehman Fee Calculator based upon EBITDA and Multiple that I figured some newer M&A advisors, buyside search firms, unfunded sponsors and otherwise might find useful to bookmark and reference, so figured I would share here: danherrski.github.io/lehmanfeecalculator

    1. Hi Daniel,

      Thanks for the reference on calculating Lehman fees. I do want to point out that the Lehman fee is not ideal for an M&A transaction. This is discussed in the post above in the “The Lehman Formula, Accelerators and Ideal Fee Alignment” section.

  28. Hi Basil,

    Thanks for this very useful post on M&A fee structure. 🙂 What if a seller already has an interested buyer and an offer for about $20mm. Would it be typical to use a fixed fee for sell-side M&A advisor fees to close the deal (take the ball over the goal line), and then a success fee if they are able to improve on the offer? In your mind what would be the appropriate fixed fee and success fee % in this situation, and the scope of work the seller would expect from an M&A advisor for the fixed fee part?

    1. Hi Alex,

      Good question. The success fees when there are a few, predetermined buyers is around half of the success fee for a fully marketed transaction (global search including research on 50 to 150 buyers).

      For a $20 million transaction the success fee for a gold service level would be 6 to 8% for a fully marketing transaction and half of that, or 3 to 4% if you’ve identified the buyer.

      If you already have an offer from the buyer then you could make it more interesting if you increased the success fee for amounts over the original offer – perhaps back up to the 6 to 8% range.

      Good luck closing the transaction!

  29. You mention above that “In the M&A industry, there are reasonably consistent ranges paid by one advisory firm to another for introductions that lead to a completed transaction.”

    What are these ranges of finders fees from a licensed representative to an advisory firm?

    Thank you.

    1. Paul,

      Introductions are pretty consistent if you accurately compare what the introduction entails. For example, if someone just sent an email to someone they knew at an M&A firm and suggested that person give someone a call, that’s worth a lot less than someone inviting both parties to a lunch. In some cases, the person making the introduction might become a formal, or informal, part of the exit team and work with the company and the M&A advisor all the way through to closing.

      The introductory fee is usually a percentage of the success fee. For a cold email intro it might be a few percent of the success fee. For the situation where the person making the intro becomes part of the exit team it could be as high as 20 to 30% of the total success fee depending on exactly how much of the work the person performed.

  30. Great post and comments. Big fan of the book as well. Quick question: any one have experience on how to handle the success fee when the selling price is partly based on an earn out, restricted securities or other type of future payments? My partner insists the full fee is due at closing. The client insists they should not have to pay the success fee until the payments are actually received. Is there a compromise?

    1. Michael – thanks for your encouraging words. There isn’t an absolute answer. Some M&A agreements stipulate full payment in cash at closing. I believe it’s fairer, and creates better alignment, if the M&A advisor is paid in exactly the same way, and at the same time, as the shareholders. Part of the reason is that I believe the job is only complete when the shareholders have all of the proceeds. In my experience with delayed payments, there’s often more work for the advisors to do to actually receive all of the cash.

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