Every day, businesses are bought and sold with advice and guidance from investment banks who specialize in merger and acquisition transactions. The majority of these businesses fall into the middle market with revenues of between $5 million to $500 million. Investment banks that focus on the middle market go out and find qualified buyers and negotiate the deal, including the lengthy due diligence process that is required before a deal can close.
For their services, expertise, and seller contacts, these M&A advisory firms earn a handsome fee, which is often tied to the success of the deal. Scaled percentage ‘success fees’ align the investment banker’s interests with those of the client that is selling the business: If the advisor is able to negotiate a higher total deal value for the sale of the business, they will be rewarded with a higher success fee. How these success fees are structured, the terms, and timeline for when fees are paid out can have a big impact on the financial outcome of an M&A transaction.
Choosing an M&A advisor is one of the most important financial decisions a business owner will ever make. Understanding how M&A advisory fees work, the different ways they can be structured, and how fees vary between different advisory firms is critically important when engaging with an investment bank.
Addressing a Need for Greater Fee Transparency
Up until quite recently, reliable data and industry benchmarks on M&A advisory fees have been surprisingly hard to track down. The lack of information on M&A fees can sometimes cause tensions between sellers and advisors when negotiating fees. Business owners who want to sell their company want to pay reasonable fees for expert advice, but without publicly available, credible information on M&A fee structures and terms, how can they make educated decisions about what is being charged and why?
In an effort to obtain a broad geographic perspective and greater transparency into M&A fees worldwide, Firmex has partnered with middle market M&A education site Divestopedia for the third consecutive year to launch its 2018 survey of M&A advisory fees. They are currently seeking responses from professionals that work in the investment banking and M&A industry across the globe.
The survey results will appear in the 2018-19 M&A Fee Guide published later this year. This comprehensive report provides insights into average M&A fees by region and major city, deal flow and minimum transaction value, success fee structures & fee percentage by deal size, and the forms of purchase price included in success fee calculation. While a number of M&A firms have accumulated internal data on fee structures and ranges, this annual report is the first of its kind to provide a comparative view among many firms across the M&A middle market globally.
Take the Survey, Get a Copy of the Report
If you’re involved in mid-market M&A transactions, please take a few minutes to complete the short online survey: https://www.firmex.com/2018-19-fee-survey/.
All survey participants who share their insights will receive a complimentary copy of the research report as soon as it is published.
A Deeper Well of Understanding
Lack of transparency makes it hard for business owners to determine whether the fees they are being asked to pay when hiring an investment banker are fair and appropriate. It also makes it hard for M&A professionals to explain and justify their fees to potential clients without supporting evidence.
For M&A professionals, sharing the report with prospective clients can provide supporting evidence for the fees and structure that are being proposed. It also helps advisory firms ensure that the fees they are charging are in step with over investment banks in a commoditized market, and are in line with the expectations of their clients. For business owners, this report offers an invaluable tool in negotiating fees and terms for investment banking engagements.
Last year, over 470 investment bankers shared their insights for the annual report. One of the key findings in the 2017 M&A Fee Guide was that success fees for M&A transactions of the same size vary significantly across regions and major city centers. Given these differences, M&A advisors and business owners can’t rely solely on national averages when evaluating fees.
Firmex and Divestopedia have now been collecting data on M&A fees for several years, which means they have a wealth of data to identify market trends, such as whether average fees for merger and acquisition transactions have increased, decreased or stayed the same.
The survey is open through to September and the 2018-18 M&A Fee Guide will be published in fall 2018.