M&A legal fees

professional profile

April 02, 2024

by a professional from University of Pennsylvania - The Wharton School in San Francisco, CA, USA

Curious what everyone is seeing out there as far as specific fee structures and overall fees for sub $10M transactions?

-Hourly?
-Deferred or partially deferred fees and associated terms?
-Success fees?
-Broken-deal discounts?
-Flat-fee models and scope / milestones?
-Hybrid models?

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commentor profile
Reply by an investor
from Columbia University in Dallas, TX, USA
we offer flexible structures -- fixed rate, percent of EV, or hourly rate. however, each deal is different, and EV is not the best yard stick. the factors that drive fees higher are often (1) who is on the other side as lawyer (2) timing and delays; if closing is repeatedly pushed out and progress drags, fees pile up at hourly rates (or caps/fixed fee engagements may expire after a time period), (3) complexity of structure (an all-cash, paperwork light deals is going to be lower cost than one with a Rollover, multiple classes of investors, SBA loan and other debt financing, a seller note, escrow, lots of offer letters or incentive plans, real estate, leases, etc. -- more documentation and more moving pieces means more work -- and some $20mm deals are more simply structured than some $2 million deals) (4) regulatory climate (businesses that are heavily regulated or litigious may require more sophisticated and time-consuming specialist advice).

For single digit million, you can often get very good service and excellent legal work for $15k-$40k -- closer to the bottom of range if you are the favorable side of each of the points above. I've recently seen several biglaw firms go well over $200k on single-digit million deals. Be careful choosing a firm that is built to handle your deal efficiently and prioritize it. If the firm's average deal size is 100+ times your deal size, you might think what level of service and priority you'll receive.
commentor profile
Reply by an investor
from Columbia University in Dallas, TX, USA
Hourly is standard. Only some firms will give broken-deal discounts -- but, in my experience, that would be very rare for a search fund. Those tend to be for repeat customer buyers, and, again, not all firms offer them. Flat fee creates perverse incentives, especially for large projects. Success fees are rarely offered. Historically, the most common compromise to avoid runaway fees is a time-bound cap and a clear agreement on what is included and what is not.

Personally, I have been willing to work with clients on flexible structures, including some you mentioned, and I'd be happy to discuss directly.
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