Total Deal Costs for a Self Funded Searcher?

May 03, 2021

by a searcher in New York, NY, USA

I am a bootstrapped self funded searcher and have been getting lots of different quotes on how much things like Legal, QofE, Tech Audit, Bank closing could most efficiently cobbled together while also getting everything done properly. Anyone feel comfortable sharing thoughts?

Thanks

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Reply by a searcher
from Michigan State University in Dallas, TX, USA

I'm new to the SF world, and honestly pretty surprising at the numbers I've seen thrown out from peers over the months. It may have to do with the formal structure of it all or the PE/Inv. banking/M&A backgrounds of many searchers. Personally I came from the opposite direction, purchasing a handful of small businesses being very frugal. I'd do all my own contracts, diligence, etc. Yes, I didn't know what I didn't know, but as a result I did learn a ton. For example, never knew what a Q of E was till recently, and would have just paid my business CPA to do a general financial diligence. This time around I'll be getting a few professionals alongside me to ensure I do as thorough of a diligence as possible. I've slated $20k for a Q of E (avg. cost after 5 quotes - $15k-$30k), $10-15k for legal (avg. was $40k-200k), insurance diligence (free), and another couple of thousand for paid diligence reviews from my former CPA, current PE friends, etc. Legal will be the biggest factor, and finding an attorney that both fits what you're doing plus is understanding of a tight budget is very difficult. If you can minimize the burden on them and consolidate some back and forth between you/seller, have an asset purchase, no significant legal diligence requirements, then you should be able to get in much lower than the $100k+ quotes I've received from many attorneys. Like many have said, it really depends on the deal, your background & comfort level, and each person you hire onto your time. I expect to be at around $25k-40k, all-in, for deals I'm looking at in the $3-6M EV range.

Reply by a searcher
from Hofstra University in Melville, NY, USA

My personal experience has been $75-$225k

These transactions were sub $5 million. There are a variety of factors. Here are a few for legal.

How many different documents and how much drafting vs boiler plate.
- Is there a Seller Note?
- Is there a variable compensation model that has to be explained legally?
- Asset or Stock Sale?
-Is there conditions when post buying/selling the business? When we had minimum headcount models in place for the period of time that we had any variable compensation on the table.
-How customer vs boilers plate are all your reps and warranties.
-Are there client contracts that have to be legally assigned? Do they require client signoff? (mostly B to B with larger businesses)
Key Employees, their contracts and compensation?
Breaches and damages. One lawsuit that I had to bring taught me the lesson to assign damages to potential important breaches where possible, as proving damages is often much more difficult then proving the breach.

There are so many more items that could impact the costs legally. Many more could be mentioned from a financial DD/QOE standpoint. And I guess that why 'it depends' is the most common answer. :)

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