Comprehensive Guide to Sell-Side MA Fees for Transactions Over 25 Million

When engaging in a mid-to-large scale merger and acquisition (MA) transaction, the question of fees can often be overwhelming. This guide aims to shed light on the typical fees associated with sell-side MA for transactions valued at 25 million dollars or more. We will explore various fee structures, including retainers, success fees, and additional expenses, and discuss industry standards and nuances.

Typical Sell-Side MA Fee Structures

For a 25 million dollar transaction, the composition of fees can vary depending on the investment bank, advisory firm, transaction complexity, and the specific services provided. Here’s a detailed breakdown of the common fee structures:

1. Retainer Fee

Some firms charge an upfront retainer, which serves as an initial payment for their services. The amount of the retainer can range from $25,000 to $100,000. This fee continues to be held until the transaction is completed, at which point it is applied or refunded, depending on the outcome.

2. Success Fee

The most significant component of sell-side MA fees is the success fee, which is typically a percentage of the transaction value. For a 25 million deal, the success fee usually ranges from 2% to 5% of the transaction value, contingent on the firm's reputation and the deal's complexity.

Breakdown of Success Fees

2% of $25 million $500,000 5% of $25 million $1,250,000

Industry standards often suggest a success fee in the range of 2% to 5%, with some firms offering incentives for achieving certain milestones or completing the transaction within a specific timeframe.

3. Expenses

In addition to the retainer and success fees, firms may charge for out-of-pocket expenses, such as travel, due diligence costs, and other miscellaneous expenses. These expenses can range from $10,000 to $50,000, depending on the scope of the transaction and the firm's practices.

Industry Standards and Nuances

Several factors can influence the fee structure in MA deals. These include the background of the sell-side firm, the size and nature of the transaction, and the services provided. Industry standards sometimes vary significantly, as seen in the following examples:

1. Business Brokers

Business brokers often charge 10% to 12% commission and typically handle deals under $5 million. However, they may work on a higher fee structure, such as a 6% commission for a $50 million engagement, which is quite high compared to industry standards.

2. MA Advisors

MA advisors, often transitioning from the business broker world, use the Lehman or Double-Lehman formula, which includes tiered success fees. For example:

10% on the first million 8% on the second million 6% on the third million 4% on amounts thereafter

This formula allows for flexibility in determining the final fee based on the size and complexity of the transaction. An annual survey published by MA sources provides insight into these industry practices.

Investment Bankers, Law Firms, and Accounting Firms

Investment bankers, law firms, and accounting firms also have their unique fee structures. For lower-middle market deals valued between $1 million to $100 million, the typical fees are as follows:

Upfront fees: $10,000 to $50,000 Success fee: $250,000 to $1 million Monthly fee: $1,000 to $5,000, depending on the amount of work performed and the size of the team

These fees can vary based on the volume of work required during the process.

Customized Fee Structures

Some firms, like our own company, do not employ a typical fee structure. Instead, they tailor their fee structures to the stage, size, and complexity of the deal. This involves a thorough understanding of the client and their business, leading to a more personalized approach.

It is crucial to negotiate these fees upfront and thoroughly understand the specific services included to avoid any surprises during the transaction process.