M&A advisor's fee = % of Aggregate Consideration or Enterprise Value?

February 21, 2025

by a searcher from Massachusetts Institute of Technology - MIT Sloan School of Management in San Francisco Bay Area, CA, USA

Hi -- for searchers/acquirers who work with M&A advisors/bankers on your deals, are the success fee based on Aggregate Consideration ("AC") or Enterprise Value ("EV")? What's favorable to the searcher while of course being fair/win-win?

Case for using EV (= Equity + Debt - Cash):
- narrower/smaller number than AC
- more strictly, formulaically tied to the actual value of assets being acquired

Case for using AC (includes deferred payments, payouts, leases, business debt etc - a larger, more inclusive number than EV)
- true reflection of the overall business being purchased, since it includes deferred payments
- does not necessarily misalign (may even better align) the advisor's incentives i.e. optimize for a large deal size, but have freedom to creatively structure the deal to minimize upfront spend and deferring more payments to the future (easing buyer's cash flow relative to the deal size) without eating into advisor fees

What do you think? Thank you!

Reply by an intermediary
from University of Arizona in Denver, CO, USA

I think you are looking at this from the wrong perspective. Brokers/Intermediaries are not parties to the transaction and have zero control over the buyer’s ability to ensure the business is not run into the ground. Their job is to sell the business and that is it. One might ‘consider’ taking the ride to get paid over time on a small seller note but why would they want to do that? Only because they are trying to help their seller client as we do on rare occasions. As a broker our job is done when the sale is consummated at which point we should be paid our entire fee. Too many searchers have the idea that the broker should do more for the searcher. Why? They don’t work for the searcher and are not paid by the searcher yet they many times believe that they should subsidize the searcher’s inability to pay for the business they want. Misguided in my opinion.

Reply by a searcher
from Massachusetts Institute of Technology in Woodstock, GA, USA

The latter is the most common for exactly the reason you mentioned. It allows for flexibility in deal structure without creating bias in the advisor. You don’t want the advisor pushing for a certain deal structure just because they are trying to prevent you from circumventing their fee. Additionally, in some cases, fees on contingent payments are collected only if and when such contingent payments are made.

+7 more replies.

Join the discussion