When it comes to selling a company, the question often arises: what is the commission amount of an M&A advisor? Not so easy to answer. So the classic lawyer's response applies: "It depends."
Compensation Components of an M&A Advisor
When talking about the commission amount for selling your own company, most people mean the compensation of an M&A advisor - but this consists of various components depending on the target or sale object. Anyone searching for "M&A advisor costs," "commission company sale," or "success fee M&A" will quickly notice: There is no fixed rule.
Retainer
If the sales project is in a rather critical market where an enormously lengthy approach to various buyer groups is necessary and there is a high risk - for example, that the company may go bankrupt during the process (e.g., distressed M&A cases) - or if many employees on the advisor's side need to be involved in the project, so-called retainers are typically charged. Depending on negotiations, these are credited toward the final, success-based compensation. Such models are often encountered in more complex sales processes or in less liquid markets where there are only a few suitable buyers or very specific requirements must be met.
Success Fee
If, on the other hand, you are in a very specialized market where the M&A advisor knows exactly who will most likely buy the company, the retainer is sometimes waived. When no retainer is charged, the success-based compensation is usually higher than in the case with a retainer. Which also makes sense - because the risk of coming away completely empty-handed is naturally much greater in this case. So basically the same principle applies here as on the stock market: high return - high risk.
High risk for the advisor of receiving �0 compensation means: a higher percentage of the total sales price. For the seller, this in turn means lower risk in the first step - because they don't pay ongoing retainers for months without knowing whether a sale will actually happen. This form of collaboration is often sought when business owners want to sell without upfront costs and speak with a specialized M&A advisor who can ideally bring in suitable buyers from their network.
And this brings us to the second component that is usually part of an M&A advisor's compensation: the success-based fee, also called the success fee. It varies - depending on the project, market, and role - typically between 3% and 17% of a project's sale price. This range is one of the most common questions when searching for "What does an M&A advisor cost?"
Studies on Value Creation Through M&A Advisors
An experienced M&A advisor pays off measurably when selling a company in most cases - not only in the execution, but especially in the purchase price and contract terms. Numerous studies show: With professional support, a higher sale price is achieved significantly more often - compared to business owners who manage the process alone.
Agrawal, Bhattacharya & Chen (2018)
The study "Do M&A Advisors Matter for Private Company Valuations?" shows that with the support of M&A advisors, a sale price premium of 6% to 25% is possible - based on an analysis of 3,281 company sales.
Deloitte "M&A Value Creation Survey"
Deloitte comes to the conclusion in the "M&A Value Creation Survey" that companies with professional advisory achieve on average 20-25% higher sale prices. The strategic management of the process and professional negotiation by experienced M&A advisors are considered decisive success factors.
Fox & Fin "How M&A Advisors Add Value"
The US consultancy Fox & Fin reports: Around 40% of surveyed business owners stated they achieved a price increase of 30-40% through M&A support. Another 15% even reported premiums of 40-100%.
Benchmark International (2021)
The analysis "The Value of Hiring an M&A Advisor" shows that sellers who work with advisors achieve on average 25% higher valuations - and that 99% of all larger transactions on the buyer side are prepared by M&A professionals.
Roles of an M&A Advisor
An M&A advisor can act on different sides, in between, or only on one side with an intermediary function - thus representing either the Buy-Side (buyer side), the Sell-Side (seller side), or acting in both directions.
Sell-Side Advisor
A classic sell-side advisor structures the sales process and takes care of all steps until signing. Often, the same advisor also takes on an intermediary role to split costs for the seller and create synergies.
Buy-Side Advisor
Buy-side M&A advisors specifically search for targets for buyer companies and receive a so-called finder's fee for successful brokerage. They act like acquirers, but usually broker exclusively to a specific company. In large corporations, buy-side advisors often accompany the process only until handover to the internal transaction team.
Dual Function
It is not uncommon for an advisor to be active on both the buy-side and sell-side simultaneously. Through this dual function, costs can be shared and synergies utilized, since the buyer also receives a service.
Information Memorandum (IM) as Part of Total Compensation
A final part of the total compensation is the so-called report or information memorandum (IM). It is the working basis with which M&A advisors can professionally enter the market. Anyone who googles the term "create information memorandum" will quickly find providers - but hardly anyone shows how much work really goes into it.
IMs vary greatly in scope and price, but are in any case associated with enormous effort. If, for example, you have an order for an IM as part of a sales mandate and receive �40,000 for it, often three analysts and a partner work on it for several weeks - not infrequently six to eight weeks non-stop. If you break that down, in many cases it barely covers the internal costs, i.e., the proverbial "petty cash." Not particularly lucrative - but absolutely necessary because it forms the substantive basis for the entire sales process.
Disclaimer
This article was prepared with the greatest care and to the best of our knowledge. Nevertheless, no guarantee can be accepted for the accuracy, completeness, or timeliness of the content. The information is for general informational purposes only and does not constitute legal, tax, or corporate strategic advice. Individual review by qualified professionals is expressly recommended. The author and Adams Strategy assume no liability whatsoever for any decisions or actions taken based on this article.
Note: This article is part of our healthcare industry series. Contact us at valuation@adamsstrategy.de for consultations on M&A in the healthcare sector.