Cost/Value in an M&A Relationship | O'Keeffe & O'Malley

Cost/Value in an M&A Relationship

Aug 31, 2020

When we engage with a potential client, we’re often asked what value we will bring to the table as their M&A advisor.

M&A advisors provide various services ranging from providing professional advice to serving as your advocate and confidante. The process usually starts with a market valuation. It’s important that business owners know the true value of their company based on current market conditions for their particular industry. Your advisor should be in tune with the current selling situation and monitor the ever-changing economy.

Most M&A professionals develop marketing materials that showcase the business, explaining the history and projecting a positive future for a buyer. This information should show recasting of the financial situation and is given only to qualified prospective buyers who have signed an NDA.

Your advisor will source buyers locally, nationally and internationally and screen potential buyers so sellers don’t waste time with those who are not serious or qualified. The goal is to bring multiple prospects so sellers can choose the one that they believe will be most successful.

Your advisor will manage the buying process, from Letter of Intent to closing day, maintaining confidentiality all along the way. Expect him or her to negotiate the best price and terms from various offers and manage the tedious tasks of due diligence with the goal of limiting distractions to the owner and management so the company continues to operate without a hitch.

It’s an important relationship that should be taken very seriously, so chemistry and trust are important factors when you choose your advisor. Choose wisely, and there will be no question as to whether the fee was commensurate with the value received.

An important part of value is the price paid for professional services. The following was derived from a Firmex study of 309 M&A advisors and investment bankers representing various size deals, with the majority being $5 million or less in sale price.

  • Most have a fixed retainer fee, but others charge monthly or hourly fees. The majority charge more than $15,000.
  • 59% of those who charge a retainer net it against the success fee.
  • Over two-thirds charge a minimum success fee.
  • Success fees are calculated using a simple percentage (43%) or a scaled percentage (39%), such as a Double Lehman 10-8-6-4-2 per million. Success fees may be based on the size of the deal, the complexity of it, the riskiness of closing the deal, or current M&A activity in the market.
  • Expenses incurred are typically billed to the client. The majority of those expenses were travel and accommodations.
  • Over half responded that all fees were paid at closing, with the remainder stating they were paid when the components are received by the seller.
  • While 60% of respondents do not charge a break fee if the client does not proceed with a predetermined quality offer, 40% do charge that fee.

At O’Keeffe & O’Malley, we work with each client to determine the fee structure that meets everyone’s needs. Our fees usually include a small retainer credited against the success fee, which runs between 2% and 10% of the sale price. For a more thorough explanation of services and fees, contact us at 913.648.0185 or visit our website at