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!
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by a searcher
from Massachusetts Institute of Technology - MIT Sloan School of Management
in San Francisco Bay Area, CA, USA
in San Francisco Bay Area, CA, USA
1yr ago
M&A advisor's fee = % of Aggregate Consideration or Enterprise Value?
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by a searcher
1yr ago
from Massachusetts Institute of Technology in San Francisco Bay Area, CA, USA
from Massachusetts Institute of Technology in San Francisco Bay Area, CA, USA
Thank you Gregg.
As a point of clarification, I’m asking about fees charged to me (the searcher/buyer, not the seller) by an M&A advisor.
Does this clarification change your perspective on the appropriateness of either fee structure? (Based on AC or on EV, as the case may be.) thank you.
As a point of clarification, I’m asking about fees charged to me (the searcher/buyer, not the seller) by an M&A advisor.
Does this clarification change your perspective on the appropriateness of either fee structure? (Based on AC or on EV, as the case may be.) thank you.
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by an intermediary
1yr ago
from The University of Chicago in Chicago, IL, USA
from The University of Chicago in Chicago, IL, USA
1. Equity value depends on EV. EV is independent of Equity value. One first calculates EV. EV is the between the buyer and the seller. Equity value is different between the two.
2. EV includes the deferred payment and the contingent payment; both of which are risk mitigation tools for the buyer.
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