An M&A advisory firm looks from the outside like a professional services business and behaves like a venture portfolio. Most of the revenue arrives in lumps, at the end, on a minority of the engagements started, and the work in between is funded by retainers that rarely cover it. Understanding that shape explains almost every operating decision such a firm makes, including the ones that look irrational. This page sets out the economics and what the firm actually runs on day to day.
The revenue is lumpy and back-loaded
A mandate on this site's worked example bills $12,500 a month for nine months and then $600,000 at close, for $712,500 in total. That shape means a firm with three mandates closing in one quarter and none in the next has not changed as a business, and any management system that reads quarterly revenue as performance will produce bad decisions in both quarters.
Most mandates do not close, and that is normal
At a 35% close rate, two thirds of the work started never earns a success fee. That is not a failure rate to be fixed; it is the cost structure of the business, and it is why the fee on the ones that do close looks large in isolation. It is also why the discipline of pricing a live book at $210,000 a mandate rather than $600,000 matters so much.
The firm runs on relationships, and they are personal
Mandates come from people who have seen the firm work: lawyers, accountants, previous clients, and bankers on the other side of past deals. That network is the firm's real asset and it lives, by default, in individual partners' heads and inboxes. Firms that record it deliberately keep it when somebody leaves; firms that do not, do not.
Capacity is the binding constraint, not demand
A small advisory firm can nearly always find another pitch. What it cannot do is run more live processes than it has senior attention for, and processes that get insufficient attention close at a lower rate, which makes over-taking self-punishing. That is why the per-mandate expected value is the number that should sit in front of a take-it-or-not decision.
Questions people ask about m&a advisory firm
How does an M&A advisory firm charge?
Usually a monthly retainer plus a success fee on close, often with the retainers credited against the fee. The negotiation is over the crediting as much as the percentage.
How many mandates can a small firm run?
Fewer than it can win. Senior attention is the constraint, and thinly-attended processes close at a lower rate, which makes over-taking self-defeating.
What does a boutique run on operationally?
A record of live mandates, buyer lists, and the relationships that produce the next pitch. In most firms two of those three are in a spreadsheet and an inbox.