Say PwC or another big 4 is brought in for financial due dilligence. Who ends up paying? the buyer or the seller?
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Whoever engages the advisor is responsible for the fees. Although sometimes you can negotiate breakup fees where you can get reimbursed for certain transaction fees.
I feel like it's usually the buyer's responsibility unless agreed to otherwise. I used to work in diligence and our client on a buy-side deal and who we billed was the PE firm/strategic that wanted to buy the Target, not the Target itself. Sometimes the Target engages it's own vendor for sell-side diligence, so I don't see why they would pay for diligence twice.
When you're doing deals, even in the MM, in excess of $10M, the $200K or so of diligence fees aren't that material to the deal. There has usually been so much negotiating/back and forth by that stage already that most PE professionals just want to close and move on with their lives.
Is $200K the ballpark DD fee across the board or is this situational? Seems like a lot for LMM deals.
It depends how fancy you want to get and what tier of provider you want. You'll have some level of accounting/ financial DD and then lawyers. Seller will likely have their adviser who gets a tier based transaction fee. buyer may use a buyside adviser with a smaller flat fee.
$200k feels a little low for diligence fees even for a $10m (that would ULMM) deal. That might cover a QofE from a BDO/RSM type, but there's also tech and operational DD as well as the legal fees. For comparison, most of our deals are in the $50 - $100m range and we pay ~$1m a pop.
At the end of the deal, the adviser still gets paid, so the buyer assumes whatever that cost actually is. While the payments might occur before the deal closes, it is still coming out of the cash/working capital adjustments that is done before close, so ultimately, the buyer doesn't get that cost. It may not be the buyer writing the check, but it still comes out of the combined entity.
Agree with everyone above--whoever hired the advisor is on the hook for their fees. You'll occasionally see fee reimbursement in auction processes (e.g. the seller will reimburse potential buyers for up to, say, $500k in diligence fees). This is typically offered in lieu of exclusivity when there are a handful of buyers in the later rounds of a process when the seller wants to maintain some competitive tension.
Seller will sometimes hire big 4 for vendor DD report. In that case, they pay for it.
But if you want to have your own advisor (another big 4) to do it again, then you pay for it
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