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Do you want to sell your company? Become familiar with the M and A Advisory Fee Structure.

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New clients are retained by merger and acquisition consulting companies, also known as investment banks, who sign a negotiable commitment letter outlining the services to be rendered, the fee structure, and other general terms of the agreement. The three most popular components of an M&A Advisory Sydney fee structure are discussed in this article:

 

* There is a retainer fee.

 

* There is a success charge.

 

* Premium for recovery of expenses

 

Depending on the investment bank, the transaction size, and the specific customer, these three elements may or may not be included. Bulge bracket investment banks, for example, will almost certainly have a fee structure that incorporates all three elements when negotiating transactions worth more than $100 million (enterprise value). While all three elements can be included in a middle-market investment bank's fee structure, the cost reimbursement fee is frequently the first to be negotiated out of the deal. It's not unusual for the up-front charge to be applied to the performance fee or waived entirely in smaller middle-market transactions. When it comes to smaller transactions, company brokers typically only charge a performance fee. The performance fee accounts for the majority of an M&A advisor's compensation in all cases.

 

Fee for Success

 

The performance fee, which is usually a percentage of the enterprise value (EV) of the business for sale and is dependent on a profitable transaction, is the most important fee. As a result, the advisor will not be charged their primary fee if the deal does not close.

 

The performance fee can also be measured using the conventional Lehman scale (i.e. single, double, and triple) and other similar formulas, which charge an initial percentage of the enterprise value for a minimum purchase price and a larger, descending percentage for sums above that minimum. This arrangement can also be changed to include escalating percentages, which can provide greater motivation for the M&A advisor to negotiate the best possible closing terms.

 

Fee for Retainer

 

The retainer fee is often determined by the size and complexity of the transaction. The initial retainer fee may be a percentage of the company's valuation, but it's more common to see it as a flat fee upfront. Some companies set up a series of retainer fee payments tied to pre-determined contract milestones. In most cases, the retainer fee is negotiable.

 

Reimbursement of Expenses a fee

 

Any out-of-pocket expenses for travel and other ancillary costs incurred by the M&A advisor working to close the deal will be covered by the expense reimbursement charge. The bigger the purchase, the more costs are likely to accumulate.

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