How much should I pay in retainer fees to my M&A advisor or investment banker?

Knowing how much to pay in fees is an oft-repeated and more oft-disputed topic in the M&A world than perhaps any other. Often disputed because sellers are sometimes reticent to pay and oft-repeated because advisors have to consistently explain the services rendered for the fees obtained. In short, there are three general fees you may or will be asked to agree to before retaining an expert advisor to sell the company.

1. Monthly retainer fee. Monthly retainers can range in price depending on the M&A shop with which you decide to work. In general, the retainer fees are several thousand dollars a month.

2. Hourly consulting fees. If you’re working with a reputable investment bank, hourly consulting is less common. If the transaction is carried out by a legal entity that is not being “retained” for services, there could be an hourly consulting tab billed to the business. In some events, hourly consulting is tagged on top of the monthly retainer, depending on the type of organization in which you work. Again, it really is dependent on the size and type of business you operate.

3. Commission fee at the time of deal close. This will always be included in the fees paid in the business sales process. Smaller businesses, which often require more work per dollar earned, will generally pay more when the deal goes down, but sometimes are charged less as a retainer. It’s a bit of an inverted twist in payment structures.

If you’re selling a legitimate business, #s 1 and 3 will most likely apply. What you pay for them may range greatly depending on the experience, know-how, connections and opportunities which can be delivered by the retained firm.

What do you get from a retainer fee? 

Retainer fees are a way to “retain” the services of a knowledgeable professional. They reside somewhere between a one-time contract full-time employment and generally include:

  • Business consulting for growth, optimization and profit, revenue and logistical improvement prior to the company’s sale.
  • An industry-specific business valuation with crafting of Private Placement Memorandum, Confidential Marketing Memorandum and Proforma Financial documentation and preparation.
  • Pitching the business to potential buyers. A true M&A advisor will work to pitch the business to various types of business buyers, working to get multiple offers to increase the final price of the company.

Rarely do merger and acquisition shops post the rates they charge for selling businesses. There are several reasons for this. The most important being that some deals suck more time and effort out of the advisor than they may be worth. While some broker/dealers will attempt to bleed you, others are simply charging a reasonable fee based on the required effort they may need to expel to get your business out to potential investors and serious buyers with money in their pockets. Click here for more detailed info on investment banking fees, including retainers and success fees.

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Nate Nead
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC which includes InvestmentBank.com and Crowdfund.co. Nate works works with middle-market corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He is the chief evangelist of the company's growing digital investment banking platform. Reliance Worldwide Investments, LLC a member of FINRA and SIPC and registered with the SEC and MSRB. Nate resides in Seattle, Washington.
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