In last week’s blog post you may recall that we examined how valuable an M&A advisory firm can be to business owners who are interested in an eventual exit. Several benefits of hiring a professional firm were examined, including:
These are just some of the benefits, and there are plenty of others we could list.
But, this raises the question: Based on these benefits, what should I expect to pay a professional M&A advisory firm to guide me through the process?
Keep in mind that like all decisions you make, you can go cheap and “hire” your Cousin Larry who has a real estate license but has never sold a company in his life. Or, you can find a local business broker who may sell 1-2 companies a year and conducts most of his marketing at the local country club over gin and tonics.
However, if you want a truly experienced team to represent you, one that will be with you through the entire exit process from the initial business evaluation, the creation of value building/enhancing strategies, development of a thorough list of buyers (including those outside of your industry and local market), and finally, represent you at the negotiating table, you will need to invest some money upfront.
Nearly all professional exit planning firms will require an initial fee for their services. Our friends at Axial have provided some guidance on this:
To work on your behalf (known as a “sell-side engagement”), an intermediary can be engaged under a retainer fee, a success fee, or a combination of the two methods. Retainer fees, also known as work fees, typically start at $50,000 and go up depending on the size of potential transaction. Some retainer models involve a monthly installment ($3,000 to $15,000), while others are arranged for a term at a flat fee.
The success fee percentages can be structured in several ways. On smaller deals, the success fee may be a flat percentage — usually 6% to 12% — of the transaction. On large deals (over $50 million), that flat percentage can drop to as low as 1.5%. The workload required by an intermediary to close a deal does not differ tremendously based on the size of the transaction, and actually can be less work for larger companies considering the increased access to resources.
Generational Equity’s business model is very similar to that described above; however, unlike many M&A intermediaries, we deduct the cost of the initial retainer from the seller’s eventual success fee. (Our only exception exists in California where state laws do not permit this, so in California we adjust the success fee at the end to account for this.)
The important issue to remember is this: You get what you pay for. Again, you can go cheap and hope for the best or you can invest in your success based on the track record of the M&A firm you hire.
The good news is Generational Equity has a proven record like no other M&A intermediary in North America. In fact, based on Thomson Reuter’s data, no one has closed more transactions over the last decade in the lower middle market than our firm. You can see this using the league tables published on our website every year:
I can guarantee you that no local broker, nor your Cousin Larry, can match our track record.
One other item to consider regarding the retainer fee: It indicates to buyers that you are truly a committed and willing seller.
This actually turns out to be a tremendous benefit to you when we begin to talk to buyers on your behalf. The one thing that all professional buyers lack is time.
Right now, they have plenty of capital to spend, but they can’t find the time to spend it. These buyers don’t want to risk spending 3-6 months going through due diligence with a target only to have them back out at the 11th hour – that is a tremendous waste of time and resources.
Having “skin the game” in the form of an up-front fee can give buyers confidence that you will actually fully engage and close the transaction.
To learn more about why we are worth hiring if you are planning to exit in the next 1-5 years, please see the following links:
By Carl Doerksen, Director of Corporate Development at Generational Equity.
© 2019 Generational Equity, LLC. All Rights Reserved.
The information we learn from customers helps us personalize and continually improve your experience. Here are the types of information we gather.
We receive and store any information you enter on our Web site or give us in any other way. We do not sell or rent your personal information to others without your consent. We use the information we collect only for the purposes sending promotional information, enhancing the operation of our site, serving advertisements, for statistical purposes and to administer our systems. We DO NOT use third parties to provide customer service, to serve site content, to serve the advertisements you see on our site, to conduct surveys, to help administer promotional emails, or to administer drawings or contests, but reserve the right to do so in the future without advance notice.
Generational Capital Markets, Inc.’s affiliates are all part of one corporate family, they work with one another and may work together to provide services to you. The sharing of your information among affiliates enables Generational Capital Markets to serve you more efficiently and makes it more convenient for you to do business with Generational Group. Generational Capital Markets is permitted by law to share information with its affiliates. All of our affiliates follow similar privacy policies.
For reasons such as improving personalization of our service, we might receive information about you from other sources and add it to our account information.
Generational Group may license the use of its intellectual property including but not limited to its name, likeness, and logo for the use of affiliated offices. Such affiliated offices may not be owned, controlled, managed, supervised or staffed by employees, officers, or agents of Generational Group. Affiliated offices may be independently owned and operated. For more information about a particular office, please contact Generational Group at its office in Dallas, Texas.
This page may contain other proprietary notices and copyright information, the terms of which must be observed and followed.
Information on this web site may contain technical inaccuracies or typographical errors. Information may be changed or updated without notice. Generational Group may also make improvements and/or changes in the products and/or the programs described in this information at any time without notice.
Generational Group does not want to receive confidential or proprietary information from you through our web site. Please note that any information or material sent to Generational Group will be deemed NOT to be confidential. By sending Generational Group any information or material, you grant Generational Group an unrestricted, irrevocable license to use, reproduce, display, perform, modify, transmit and distribute those materials or information, and you also agree that Generational Group is free to use any ideas, concepts, know-how or techniques that you send us for any purpose.
Our computer system protects personal information using advanced firewall technology.
Information Generational Group publishes on the World Wide Web may contain references or cross references to other products, programs and services that are not announced or available in your country. Such references do not imply that Generational Group intends to announce such products, programs or services in your country. Consult a Generational Group representative for information regarding the products, programs and services which may be available to you.
Generational Group makes no representations whatsoever about any other web site which you may access through this one. When you access a non-Generational Group web site, please understand that it is independent from Generational Group, and that Generational Group has no control over the content on that web site. In addition, a link to a non-Generational Group web site does not mean that Generational Group endorses or accepts any responsibility for the content, or the use, of such web site. It is up to you to take precautions to ensure that whatever you select for your use is free of such items as viruses, worms, Trojan horses and other items of a destructive nature.
IN NO EVENT WILL Generational Group BE LIABLE TO ANY PARTY OR ANY DIRECT, INDIRECT, SPECIAL OR OTHER CONSEQUENTIAL DAMAGES FOR ANY USE OF THIS WEBSITE, OR ON ANY OTHER HYPERLINKED WEBSITE, INCLUDING, WITHOUT LIMITATION, ANY LOST PROFITS, BUSINESS INTERRUPTION, LOSS OF PROGRAMS OR OTHER DATA ON YOUR INFORMATION HANDLING SYSTEM OR OTHERWISE, EVEN IF WE ARE EXPRESSLY ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Generational Capital Markets, Inc. ("GCM"), member FINRA/SIPC, is wholly owned by Generational Capital, LLC ("GC"). Both GCM and GC are affiliated with Generational Equity, LLC; and all part of the Generational Group of companies. This website is solely for general informational purposes and is not guaranteed by us to be accurate and complete statements of fact and should not be relied on as such. Opinions in this website constitute the current judgment of the author as of the date and its last update. The content of this website does not necessarily reflect the opinions of GCM, and is subject to change without notice, and GCM is not under any obligation to update or keep current any information contained herein. This website does not constitute any personal recommendations and does not take into account the specific investment objectives, financial situation or particular needs of the reader. The information contained in this website should not be construed as an offer, or a solicitation of an offer, to buy or sell any securities or other financial investments. The information presented should not and cannot be viewed as an indicator of future performance. To the extent permitted by law, GCM does not accept any liability arising from the use or retransmission of the information in this website.
Furthermore, all information contained within this website is the property of Generational Group.
Honored to win Investment Banking Firm of the Year 3 years running.
Over 50 awards and counting.
Sign up to receive regular email updates, industry-leading insights and details on complimentary M&A executive conferences in your area from our award-winning team
Success, you have been added to our list.