Broker / IB Fees on Failed Deals

February 18, 2024

by a professional from Western Washington University in Spokane, WA, USA

A college friend of mine works for a company that has been in negotiations to be purchased. The prospective buyer proffered a deal point that is objectionable to the seller. My friend indicated that the seller (owner) seems to think he is on the hook to pay the broker / IB a substantial six figure fee because he has countered. I do not know the details, but guessing that the deal is in the $10M - $15 M range.

The "devil is in the detai," so I know it depends on any representation contract signed between buyer and broker. In my experience, the broker / IB does not get paid unless a deal is completed. Can anyone comment on how common it is that a failed deal obligates the seller to pay a fee to the Broker?

Thanks.

Reply by a searcher
from Columbia University in New York, NY, USA

The seller is only on the hook for the retainer if there is any. Success fee (that is usually determined as a % of closing EV) is, by definition, paid only at closing. Usually, as a part of the closing sources & uses. Deals die all the time, and it is the nature of the broker's business.

Reply by an intermediary
from Wake Forest University in Winston-Salem, NC, USA

As you said, the devil is in the details. The seller could be on the hook for more given their specific contract, and whether or not the seller breached an agreement. Your friend's owner should seek specific legal counsel on their specific situation.

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