What Does an M&A Adviser Charge?

Almost all UK sell-side M&A engagements are built from two components: a retainer covering the preparatory work, and a success fee payable on completion, usually as a percentage of transaction value. The variables that actually determine what you pay are the size of the retainer, whether it is credited against the success fee, the percentage itself, any minimum fee, and above all the definition of the value the percentage applies to. We do not publish market ranges here, because quoted ranges vary widely by deal size and complexity and give a false sense of precision.

The components of a fee

• Monthly retainer. A recurring fee through the life of the engagement, covering preparation, analysis, buyer research and process management. Ask whether it is capped, whether it stops if the process pauses, and whether it is deducted from the success fee.
• Upfront project fee. A single payment at the outset instead of a monthly retainer, typically covering preparation and the information memorandum. It gives cost certainty for that phase.
• Success fee. Payable on completion and normally the largest element. Calculated as a percentage of transaction value, sometimes on a stepped basis that increases above an agreed threshold.
• Minimum fee. A floor below which the success fee will not fall regardless of the percentage. On smaller transactions the minimum, not the percentage, is often the real number.
• Milestone fees. Some advisers charge a smaller amount when heads of terms are signed. Check whether it is additional to, or credited against, the success fee.

The definition that decides the bill

Two engagement letters quoting the same percentage can produce materially different fees. Everything turns on what "transaction value" or "consideration" means in the document. Points to pin down:

• Is the fee calculated on enterprise value or on the equity value you actually receive?
• Does it include debt assumed or repaid by the buyer?
• How is deferred consideration treated, and is the fee payable on it when received or at completion?
• Is an earn-out included at its maximum, at an estimate, or only if and when earned?
• Is rollover equity you retain, rather than cash you receive, included in the calculation?
• Are property or surplus assets sold alongside the business included?

A fee charged at completion on the maximum value of an earn-out that later pays out at half can be an unpleasant surprise. Where possible, fees on contingent consideration should follow the money.

What drives the cost of an engagement

• Transaction size. Percentages generally fall as value rises, which is why minimum fees exist at the lower end.
• Complexity. Multiple shareholders, group structures, overseas operations or property all add work.
• Preparation required. A business with reliable management information needs far less preparatory work than one without.
• Buyer universe. A broad international search costs more to run than approaching a handful of obvious domestic acquirers.
• Process type. A competitive process with several parties is more work than a negotiation with one, and usually worth it.

Why the cheapest adviser is rarely the least expensive

Adviser fees are a small fraction of transaction value. The difference between a well-run competitive process and a single-buyer negotiation is frequently larger than the entire fee, and so is the difference between an earn-out that is measurable and one that is not. Judge the cost against what the engagement is likely to deliver: the quality of the buyer list, the strength of the negotiating position, and the terms behind the headline number. Weigh a low quoted percentage against who will actually do the work, how many processes that person runs at once, and whether the firm has completed transactions comparable to yours.

Questions to ask before signing

• Exactly what is the success fee calculated on, in writing?
• Is the retainer credited against the success fee?
• What is the minimum fee, and at what deal value does it stop biting?
• How are deferred consideration, earn-outs and rollover equity treated?
• What is the notice period, and what happens if I decide not to proceed?
• Is there a tail period after termination during which a fee is still payable, and to which buyers does it apply?
• Who personally will run the process, and how many others are they handling?
• Do you ever take fees, commissions or introducer payments from buyers?

That last question matters more than most owners realise. You should be clear whose interests your adviser is engaged to represent.

What to do next

Mergers.co.uk is engaged by the business owner or shareholders and acts on the seller's behalf. Our fees and the basis on which they are calculated are agreed in writing before the engagement begins, and depend on the size and complexity of the transaction. As a sell-side adviser, our responsibility is to our client. What a business sale adviser does explains the work a fee covers, and you can ask us for a fee structure for your situation without commitment.

Common questions