M&A advisory fees are quoted as a percentage and the percentage is the least variable part of the arrangement. Four things move what an adviser actually earns, and deal size moves it most, because the scale that fees are argued from is regressive by design. This page sets out the four with the arithmetic on the $12,000,000 transaction this site uses throughout.
Deal size, which moves it most
Fee scales fall as consideration rises. Double Lehman charges 10% of the first million and 2% of everything above the fourth, which on a $12,000,000 deal comes to $440,000, just under 3.7%. A negotiated flat 5% at that size is $600,000, and the same 5% would be unusual on a deal ten times larger.
Complexity and the work it implies
A carve out with constructed financials and a transition services agreement is more work than a clean share sale, and advisers price it. So is a cross-border process with buyers in three jurisdictions. Where a firm will not adjust the percentage it will usually adjust the retainer instead.
Whether the retainer is credited
On the worked example, $12,500 a month over nine months is $112,500. Credited against the success fee, the payment at close falls from $600,000 to $487,500 while the total earned stays $712,500 either way. Sellers negotiate the percentage and this clause is frequently worth more.
The minimum, which is invisible until it is not
A floor below which the percentage does not apply. On a $12,000,000 sale it never bites; on a $3,000,000 one a $400,000 minimum is over 13%, which is a different arrangement from the one the headline percentage describes.
Questions people ask about m&a advisory fees
What moves M&A advisory fees most?
Deal size. Scales are regressive: double Lehman on a $12,000,000 deal is $440,000, just under 3.7%, while a negotiated flat rate at that size is often 5%.
Is the percentage the thing to negotiate?
Frequently not. Crediting of retainers and the minimum often move more money than a point on the headline.
Do advisers price complexity?
Yes, usually in the retainer where they will not move the percentage. A carve out is more work than a clean share sale.