{"id":26194,"date":"2023-09-05T08:38:28","date_gmt":"2023-09-05T15:38:28","guid":{"rendered":"https:\/\/firstpagesage.com\/?p=20842"},"modified":"2023-09-05T08:38:28","modified_gmt":"2023-09-05T15:38:28","slug":"ma-advisory-fee-structure-2","status":"publish","type":"post","link":"https:\/\/redesign.fpsclients.com\/wp\/ma-advisory-fee-structure-2\/","title":{"rendered":"M&#038;A Advisory Fee Structure: 2023 Report"},"content":{"rendered":"<p><em>Last Updated: September 5, 2023<\/em><\/p>\n<p><span style=\"font-weight: 400;\">M&amp;A advisory firms are notoriously opaque about their fee structure. There are several reasons:\u00a0<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Keeping the fee structure private allows them to remain competitive when owners are at the initial conversation stage<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Standard fees can be fluid based on individual situations (e.g., owner wants to sell immediately vs. sell to the highest bidder)\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Firms may specialize in one sector, making their services more valuable in that industry, and a published fee wouldn\u2019t communicate that value<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">The table below provides average fees associated with hiring an M&amp;A advisory firm. Our team collected this data using publicly available information and then segmented it by company size as expressed by <\/span><a href=\"https:\/\/firstpagesage.com\/seo-blog\/ebitda-multiples-by-industry\/\"><span style=\"font-weight: 400;\">EBITDA<\/span><\/a><span style=\"font-weight: 400;\">.\u00a0<\/span><\/p>\n<h2 style=\"text-align: center;\"><span style=\"font-weight: 400;\">M&amp;A Advisory Fee Structure, Summarized<\/span><\/h2>\n<table class=\"fps_table table1\">\n<tbody>\n<tr>\n<td><b>EBITDA Range<\/b><\/td>\n<td><b>Retainer Fees<\/b><\/td>\n<td><b>Success Fee<\/b><\/td>\n<td><b>Fixed Success Fee<\/b><\/td>\n<td><b>Flat Percentage Success Fee<\/b><\/td>\n<\/tr>\n<tr>\n<td><b>\u22641MM<\/b><\/td>\n<td><span style=\"font-weight: 400;\">$40-50k<\/span><\/td>\n<td><span style=\"font-weight: 400;\">7-10%<\/span><\/td>\n<td><span style=\"font-weight: 400;\">N\/A<\/span><\/td>\n<td><span style=\"font-weight: 400;\">8-11%<\/span><\/td>\n<\/tr>\n<tr>\n<td><b>$1-10MM<\/b><\/td>\n<td><span style=\"font-weight: 400;\">$51-75k<\/span><\/td>\n<td><span style=\"font-weight: 400;\">5-8%<\/span><\/td>\n<td><span style=\"font-weight: 400;\">N\/A<\/span><\/td>\n<td><span style=\"font-weight: 400;\">6-9%<\/span><\/td>\n<\/tr>\n<tr>\n<td><b>$10-30MM<\/b><\/td>\n<td><span style=\"font-weight: 400;\">$76-100k<\/span><\/td>\n<td><span style=\"font-weight: 400;\">3-6%<\/span><\/td>\n<td><span style=\"font-weight: 400;\">N\/A<\/span><\/td>\n<td><span style=\"font-weight: 400;\">N\/A<\/span><\/td>\n<\/tr>\n<tr>\n<td><b>$30-50MM<\/b><\/td>\n<td><span style=\"font-weight: 400;\">$101-125k<\/span><\/td>\n<td><span style=\"font-weight: 400;\">2-5%<\/span><\/td>\n<td><span style=\"font-weight: 400;\">$1-2MM<\/span><\/td>\n<td><span style=\"font-weight: 400;\">N\/A<\/span><\/td>\n<\/tr>\n<tr>\n<td><b>$50+MM<\/b><\/td>\n<td><span style=\"font-weight: 400;\">$126-150k<\/span><\/td>\n<td><span style=\"font-weight: 400;\">N\/A<\/span><\/td>\n<td><span style=\"font-weight: 400;\">$2-3MM<\/span><\/td>\n<td><span style=\"font-weight: 400;\">N\/A<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p><span style=\"font-weight: 400;\">In the following sections, we define the different fee types used in this table and explain how they work in an M&amp;A advisory relationship. We also provide context, suggestions, and warnings business owners would find useful when contemplating selling their company.\u00a0<\/span><\/p>\n<h2><span style=\"font-weight: 400;\">M&amp;A Advisory Fees, Explained<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Fundamentally, M&amp;A advisory fees break down into two categories:<\/span><\/p>\n<ul>\n<li aria-level=\"1\"><b>Retainer Fees: <span style=\"font-weight: 400;\">Fixed amounts charged up-front to ensure that the owner is committed to the process. As the advisory firm does its work, the retainer is drawn down.<\/span><\/b><\/li>\n<li aria-level=\"1\"><b>Success Fees: <span style=\"font-weight: 400;\">Fees<\/span> <span style=\"font-weight: 400;\">paid to the selling firm upon closing. May be fixed, flat percentage, scaled, or reverse scaled.<\/span><i><span style=\"font-weight: 400;\">\u00a0<\/span><\/i><\/b><\/li>\n<li aria-level=\"2\"><b>Fixed Success Fee<\/b>: <span style=\"font-weight: 400;\">A success fee in the form of a predefined dollar amount, distributed at closing. Often used in deals that require minimal work to close.<\/span><\/li>\n<li aria-level=\"2\"><b>Flat Percentage Success Fee<\/b>: <span style=\"font-weight: 400;\">A success fee in the form of a percentage of the company\u2019s enterprise value upon closing.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Success fees can also be presented as \u201cscaled\u201d and \u201creverse scaled,\u201d meaning a certain percentage is added for every million earned during closing. The Lehman Scale, an industry metric for distributing these percentages, breaks the process down as follows:\u00a0<\/span><\/p>\n<table class=\"fps_table table2\">\n<tbody>\n<tr>\n<td><b>Name<\/b><\/td>\n<td><b>1st MM<\/b><\/td>\n<td><b>2nd MM<\/b><\/td>\n<td><b>3rd MM<\/b><\/td>\n<td><b>4th MM<\/b><\/td>\n<td><b>Remaining <\/b><b>Total<\/b><\/td>\n<\/tr>\n<tr>\n<td><b>Scaled Success Fee<\/b><\/td>\n<td><i><span style=\"font-weight: 400;\">5%<\/span><\/i><\/td>\n<td><i><span style=\"font-weight: 400;\">4%<\/span><\/i><\/td>\n<td><i><span style=\"font-weight: 400;\">3%<\/span><\/i><\/td>\n<td><i><span style=\"font-weight: 400;\">2%<\/span><\/i><\/td>\n<td><i><span style=\"font-weight: 400;\">1%<\/span><\/i><\/td>\n<\/tr>\n<tr>\n<td><b>Reverse Scaled Success Fee<\/b><\/td>\n<td><i><span style=\"font-weight: 400;\">1%<\/span><\/i><\/td>\n<td><i><span style=\"font-weight: 400;\">2%<\/span><\/i><\/td>\n<td><i><span style=\"font-weight: 400;\">3%<\/span><\/i><\/td>\n<td><i><span style=\"font-weight: 400;\">4%<\/span><\/i><\/td>\n<td><i><span style=\"font-weight: 400;\">5%<\/span><\/i><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p><span style=\"font-weight: 400;\">These fees are used for different purposes: Retainer fees ensure that a client is committed to the process of <\/span><a href=\"https:\/\/firstpagesage.com\/business\/selling-a-business-to-private-equity-pros-cons\/\"><span style=\"font-weight: 400;\">selling<\/span><\/a><span style=\"font-weight: 400;\">, effectively keeping sellers out of the market until they are ready to engage. Success fees ensure the advisory firm\u2019s incentives align with the sellers\u2019, which can range from simply getting a deal done no matter what to getting the highest amount possible.\u00a0<\/span><\/p>\n<table class=\"table3\">\n<tbody>\n<tr>\n<td><b><i>Note: <\/i><\/b><i><span style=\"font-weight: 400;\">Companies that do not have an in-house legal team will also incur legal fees in addition to the advisory fees outlined above. It\u2019s important to consider legal firms with a specialization in M&amp;A, as deal structures are typically abstruse.<\/span><\/i><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<h2><span style=\"font-weight: 400;\">M&amp;A Advisory Fee Structure Red Flags\u00a0<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">One of the top priorities of any business owner wishing to sell their company is working with an M&amp;A advisory firm that will genuinely represent their interests. This section offers insights into what to watch out for when considering M&amp;A firms and is based on my personal experience selling several businesses, as well as conversations with fellow business owners.\u00a0<\/span><\/p>\n<h3><b>Performance-Based Fee Structure<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">First-time sellers often make the mistake of thinking that they know the value of their company better than the people who sell companies for a living. As a result, they believe they are getting a great deal when a firm agrees to a low initial percentage that comes with something like a reverse scaled success fee.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">In general, M&amp;A advisory firms will not agree to this structure unless they believe that your company is worth more than you believe it is. Taking on this structure is risky unless you\u2019ve done an in-depth valuation before agreeing to engage an advisor.<\/span><\/p>\n<h3><b>Changing Rates<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">While it may seem like a company willing to change their rates is doing so in order to work with you, you should view it the same way you would in any sales situation. If a firm quotes you 5% one day and is willing to drop to 3% the next, that means the bottom line was always 3%, and the additional 2% was just a higher profit margin for them.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">By contrast, firms that stick to their guns on pricing typically do so because they have closed enough deals to recognize that their initial % is based on what works best for them and the client.\u00a0<\/span><\/p>\n<h3><b>Fee Clarity<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">Mid-market companies \u2013 the typical companies seeking sell-side advisory \u2013 are usually looking at a success fee of 3-5%, but <\/span><i><span style=\"font-weight: 400;\">what that percentage is of<\/span><\/i><span style=\"font-weight: 400;\"> deeply impacts your takeaway from the deal. The two options are company valuation and price received on closing. While the close price seems to be the fairer option, your deal is likely to involve stock, which won\u2019t be realized for years and can vary widely in value; thus, getting clarity on what number the fee percentage applies to is especially important.\u00a0\u00a0<\/span><\/p>\n<h2><span style=\"font-weight: 400;\">Selecting The Right M&amp;A Advisor<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Your M&amp;A advisor\u2019s fees will be part of your decision in choosing an advisor, but it is more important to find a firm that will represent your interests well and get you maximum value for your company. Getting a slightly better success fee of 3% is a shallow victory if the firm can\u2019t get offers as high as a more talented advisor.<\/span><\/p>\n<table class=\"table4\">\n<tbody>\n<tr>\n<td><i><span style=\"font-weight: 400;\">Related: See our 2023 report on the <\/span><\/i><a href=\"https:\/\/firstpagesage.com\/business\/the-top-ma-advisory-firms-in-the-us\/\"><b><i>Top M&amp;A Advisory Firms in the US<\/i><\/b><\/a><i><span style=\"font-weight: 400;\">.<\/span><\/i><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p><span style=\"font-weight: 400;\">So, what aspects should a business owner look for in a potential M&amp;A advisory firm? The most important metrics include:\u00a0<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Experience:<\/b><span style=\"font-weight: 400;\"> While bigger doesn\u2019t automatically mean better, larger companies probably have a track record of sustained growth, indicating a successful tenure. By contrast, firms doing two or three deals before going out of business the next year indicate a short-term desire for profit that rarely, if ever, benefits clients.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Volume: <\/b><span style=\"font-weight: 400;\">The best advisors will be the ones that are capable of handling a larger workload. Firms handling 50-70 deals a year, for example, have built a greater level of experience than a firm that only handles half a dozen at the same time.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>The Agent: <\/b><span style=\"font-weight: 400;\">Who is handling your deal on a day-to-day basis? Is the firm sending their most experienced representatives (CEO or co-founders) or someone else? This question is often the bane of larger M&amp;A advisory firms that have to place junior executives on mid-sized deals due to their workload.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Fundamentally, choosing the right M&amp;A advisory firm is about finding the right match for your goals in selling. You\u2019ll certainly want to work with a firm that has sold businesses in your EBITDA range, and perhaps in your industry as well, but the goals of the firm should also match your intent as a seller.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">There are many areas of specialization among M&amp;A advisory firms, making it especially difficult to find the one best suited to your company\u2019s unique needs. A good next step is to speak with the ones who have done the most deals recently. We published a report on the <\/span><a href=\"https:\/\/firstpagesage.com\/business\/the-top-ma-advisory-firms-in-the-us\/\"><span style=\"font-weight: 400;\">top M&amp;A advisory firms in the US<\/span><\/a><span style=\"font-weight: 400;\">, which you may want to reference. You can also feel free to reach out to me personally if you have questions.\u00a0 <\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In this report, we share average fees associated with hiring an M&#038;A advisory firm, segment by company size as expressed by EBITDA.\u00a0<\/p>\n","protected":false},"author":3,"featured_media":20854,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"content-type":"","footnotes":""},"categories":[24],"tags":[],"class_list":["post-26194","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business"],"meta_box":[],"_links":{"self":[{"href":"https:\/\/redesign.fpsclients.com\/wp\/wp-json\/wp\/v2\/posts\/26194","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/redesign.fpsclients.com\/wp\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/redesign.fpsclients.com\/wp\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/redesign.fpsclients.com\/wp\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/redesign.fpsclients.com\/wp\/wp-json\/wp\/v2\/comments?post=26194"}],"version-history":[{"count":0,"href":"https:\/\/redesign.fpsclients.com\/wp\/wp-json\/wp\/v2\/posts\/26194\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/redesign.fpsclients.com\/wp\/wp-json\/wp\/v2\/media\/20854"}],"wp:attachment":[{"href":"https:\/\/redesign.fpsclients.com\/wp\/wp-json\/wp\/v2\/media?parent=26194"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/redesign.fpsclients.com\/wp\/wp-json\/wp\/v2\/categories?post=26194"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/redesign.fpsclients.com\/wp\/wp-json\/wp\/v2\/tags?post=26194"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}