What is a typical 'success fee' for a buy-side broker?
May 02, 2019
by a searcher
in Florida, USA
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by a searcher
from Wayne State University
in Linden, MI 48451, USA
What I have seen lately is a non-contingent, non-refundable retainer typically paid monthly; a success fee paid at deal close; and deal related expenses. All of these are negotiable, and sometimes the monthly retainer is credited against the success fee. Although, lately it has been a pretty strong M&A market, and advisors are getting picky about who they work with and less flexible on fees.
Monthly retainers of $5-$25K+ are not uncommon depending on deal size and the level of services you expect the buy-side advisor to perform. These retainers are used to off-set the advisors fixed costs. A 1 seat enterprise data tool may be $3k/month, a junior analyst may be $6K/month plus benefits and incentives, add in training, equipment and overhead and a small firm is looking at $125K+/yr to support back office needs.
The other reason behind the retainers are that “buy-side” engagements carry more risk than “sell side”. With a sell-side client the advisor has an asset that is likely to sell to someone and the advisor will get paid when that happens. With a buy side engagement, the client is only one of possible multiple buyers for an asset yet to be identified, and an “off-market” seller may not be fully engaged in selling and change their mind.
Success fees are typically based on a percentage of the sale price and range based on the size of the transaction, often with a “minimum” success fee. Success fees can range from 2-10% of the transaction price. The larger the deal, the lower the percentage, the smaller the deal the higher the percentage. Most seem to fall in the 4-5% range.
Expenses vary and are typically agreed to in advance.
While it may seem expensive to use a buy-side advisor, finding an off-market deal can typically result in a purchase price that is lower than a deal that is already listed with a sell-side advisor saving you money on the deal.
A good advisor will help you define and narrow down your strategy and target industry. They will then identify targets, review them with the client and decide who to eliminate and which ones to pursue further. They will then create marketing materials and contact the business owners. When a “seller” is identified they will assist in gathering information about the target and assist in making an offer. They will assist in the negotiation, due diligence and help drive the deal to a close.
Of course, a searchfund entrepreneur can do all these things themselves, assuming they know how. Let me know if you have any other questions, I have performed searches for others, as well as myself.
Reply
by a searcher
from Harvard University
in Boston, MA, USA
^redacted Here's one more post re: buy-side advisor dynamics.
from Wayne State University in Linden, MI 48451, USA
Monthly retainers of $5-$25K+ are not uncommon depending on deal size and the level of services you expect the buy-side advisor to perform. These retainers are used to off-set the advisors fixed costs. A 1 seat enterprise data tool may be $3k/month, a junior analyst may be $6K/month plus benefits and incentives, add in training, equipment and overhead and a small firm is looking at $125K+/yr to support back office needs.
The other reason behind the retainers are that “buy-side” engagements carry more risk than “sell side”. With a sell-side client the advisor has an asset that is likely to sell to someone and the advisor will get paid when that happens. With a buy side engagement, the client is only one of possible multiple buyers for an asset yet to be identified, and an “off-market” seller may not be fully engaged in selling and change their mind.
Success fees are typically based on a percentage of the sale price and range based on the size of the transaction, often with a “minimum” success fee. Success fees can range from 2-10% of the transaction price. The larger the deal, the lower the percentage, the smaller the deal the higher the percentage. Most seem to fall in the 4-5% range.
Expenses vary and are typically agreed to in advance.
While it may seem expensive to use a buy-side advisor, finding an off-market deal can typically result in a purchase price that is lower than a deal that is already listed with a sell-side advisor saving you money on the deal.
A good advisor will help you define and narrow down your strategy and target industry. They will then identify targets, review them with the client and decide who to eliminate and which ones to pursue further. They will then create marketing materials and contact the business owners. When a “seller” is identified they will assist in gathering information about the target and assist in making an offer. They will assist in the negotiation, due diligence and help drive the deal to a close.
Of course, a searchfund entrepreneur can do all these things themselves, assuming they know how. Let me know if you have any other questions, I have performed searches for others, as well as myself.
from Harvard University in Boston, MA, USA