When considering a sale or acquisition, business owners often wonder: Who is responsible for paying the M&A advisor’s fees?
While the answer may sound straightforward, understanding the advisory fee structure and the value it brings to the M&A process is essential for making the most out of any business transaction.
In most cases, the party engaging the M&A advisor is responsible for the advisory fees.
This arrangement aligns the advisor’s loyalty and focus with their client’s goals, whether that means maximizing sale value, targeting the right prospective buyers, or managing the complex process efficiently. Here’s a closer look at the different types of fees, how they work, and why they’re structured the way they are.
The Main Components of M&A Advisory Fees
Retainer Fees
A retainer fee, sometimes referred to as an upfront fee or engagement fee, is typically paid at the beginning of an M&A transaction to secure the advisor’s commitment and fund the initial steps of the deal. This fee allows the advisor to conduct market research, prepare essential materials, and begin outreach to potential buyers, all of which add value by ensuring readiness and a strong buyer pipeline. For clients planning to sell, the retainer supports early work that can position the business more attractively; for buyers, it enables a thorough assessment of potential acquisition targets. In smaller transactions, these fees are often fixed amounts or based on minimum thresholds.
Success Fees
The success fee is generally the primary compensation structure for M&A advisors and is paid only when the transaction closes. This fee is often calculated as a percentage of the transaction value or final purchase price, aligning the advisor’s success with the client’s outcome. Different success fee structures and percentages will apply based on deal size and complexity. This structure motivates the advisor to achieve the best possible sale price for sellers or, for buyers, to secure terms that align with their strategic objectives.
Reimbursable Expenses
In addition to retainer and success fees, advisors may incur expenses related to due diligence, travel, virtual data rooms (VDRs), or specialized financial analysis. These expenses are generally reimbursed by the engaging party and should be clearly outlined in the engagement agreement to ensure transparency.
Why Sellers Find Value in M&A Advisory Fees
For business owners looking to sell, paying an M&A advisor may initially seem like an added cost. However, in a sell-side transaction, advisors bring substantial value by identifying qualified buyers, negotiating favorable terms, and navigating the M&A process to secure a higher price. Working with an experienced advisor not only supports the sale process but also can increase the total fees recovered from the sale of the company. Sellers can feel confident that their advisor is focused on delivering the highest possible price and a successful outcome.
Value for Buyers Who Engage an M&A Advisor
Buyers who engage an M&A advisor gain strategic advantages that support a successful acquisition. Advisors streamline the acquisition process, conduct in-depth due diligence, assess enterprise value, and provide market insights that align with the buyer’s strategic goals. By working closely with an advisor, buyers can navigate complex negotiations with confidence and secure terms that deliver long-term value. Engaging an M&A advisory firm in this capacity can be especially beneficial in larger transactions or where additional resources are required for financial analysis, purchase agreements, and regulatory compliance.
A well-executed transaction ultimately benefits all parties involved, and investing in M&A advisory fees is often an essential step toward achieving the best deal and a successful outcome.