Buy-side broker commission structure

October 08, 2021

by a searcher from University of Pennsylvania - The Wharton School in Houston, TX, USA

I have a friend looking at a business to purchase, and has been approached by a buy-side agent who would like to represent him. The agent has offered no retainer up front (for other businesses if this one falls through), and a structure of ~6.5% on the first $5M, 5% on value between $5M-$10M, 4.8% from $15M-$20M, and 4.6% $20M+. This seems high to me, but would welcome input here.

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Reply by a searcher
from Manhattan College in Port St. Lucie, FL, USA

I understand the pros and cons to both sides of the argument. All of my agreements are non-exclusive to allow both my buyers and sellers the flexibility. Why would I tie them down unless that was the only deal I was going to work on which is never going to be the case. As far as what people charge, to each his own. I keep mine simple with a flat fee with an occasional concession to get a deal done but that is the exception versus the rule. Honestly, if you want top of mind activity and deal flow for your deals than you pay accordingly. If the person brings value in expertise, speed, intangibles, etc, they will command a higher percentage. I had a colleague that went the low budget route and spent 6 months with nothing. In less than 2 weeks, we touched 5 of his deals with buyers, sellers, and capital raises.

Reply by an intermediary
from Pepperdine University in Los Angeles, CA, USA

I'm a buyside "broker" specializing in health care services usually for large PE funds searching for proprietary add-on opportunities for their established portfolio companies. Many of the big funds have standardized contracts. Whether it is their contract or mine, it is usually Lehman (5,4,3,2,1) and I try to drag the 2% up to $20MM or so and then 1% after that. Although I've had some PE groups offer up as much as 5% for proprietary platform deals, the fees described above seem wickedly out of market (but I'd love to have them!). I'd be laughed at if I ever asked for them from my client base.

Lot of sketchy brokers out their with horrible contract terms trying to take advantage of the novices.

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