Hello and greetings from a new user.
I've been approached to serve as an independent adviser by an investment bank looking to acquire some niche software companies. I estimate the deal size to be about $250-300M. My background is a top-notch fit in this sector. I'm curious to know some industry standards on fee structure for such a position in terms of annual/monthly retainer fee and success fee.
Would something like a $200K/year retainer (to be credited back on success) + a $3M flat success fee + a 1-year termination be considered reasonable in this scenario? My strengths are more in technical and business strategy with no real exposure to investment banking. Note, I'm flying solo and not part of a larger team.
I appreciate any guidance from this wise forum.
Cheers,
Joe
On first blush that might be a touch high given your role and I struggle to understand the circumstance where a bank would need to hire you, a single person, to advise them on a relatively small transaction.
You don't have a lot of horsepower (analysis-wise) given it's just you and it doesn't sound like you're brokering the deal so it's hard to determine what you're bringing to the table. Given that however, with the detail we have that's probably not an egregious place to start though.
3mm success fee is way too high for an individual. The investment bank itself may not even get that much for a deal that size.
Thanks for the feedback. True, I don't have any IB experience so this is all new. Some years ago, I was a senior executive for one of target companies. The investors are interested in my knowledge on market potential, key players, opportunities, etc. I'm proposing to help setup the organization, bring in a solid team and take a active operations role post-transaction.
In my mind, the 3M success fee was a starting point and I've already heard it's very high for an individual. On the other hand, some of the offers are at 250K + a couple of weeks of consulting, which is awfully small. Is that the best I could hope for as fair compensation or is it worth holding out for more? What would be a reasonable structure in a 250-300M deal for me? Still waiting on a couple of other proposals...
Cheers,
Joe
I think realistically, if you can clear $1 million on this you will have done very well. I suspect you'll get something closer to the consulting fee you mentioned which I'm not very familiar with but 100 bps would be a pretty attractive fee for an investment bank, let alone an individual.
To clarify, I meant a 1-week consulting fee (maybe 30-35K) + success fee of 250K. There's 3 parties interested, so I'm trying to negotiate a 750K for deal success and a 4-5 week consulting block for 100-120K. Will be sure to post an update in a few weeks. Thanks again,
Joe
Im in PE so maybe its a bit diff (avg deal size at my firm is similar to your deal), but your consulting fee seems high. Most of what I see ranges from 15-25k/week and this is heavily dependent on the type of work they're doing. So for all I know your work is worth 30k/week. Your success fee sounds fairly normal, but if your weekly rate is justifiable at 30k+ you could probably ask for more.
Yup, fees are high but if you can swing that, props to you lol.
I'd expect some sort of ratchet actually, which will help convince the client you're focused on maximizing valuation for them. Something like the below, all made up #s of course:
-1.5% up to EV of $200 million -3% of incremental value between 200 and 250 -4% of incremental value between 250 and 300 -6% incremental value above 300
And then some min fee.
That's an incredibly aggressive fee schedule and he's working on the buyside so a ratchet as you described wouldn't make any sense.
Rustcat, I know NP's numbers are hypothetical but would suggest against reaching that much as they may just tell you to take a hike. I still think a success fee of ~$1 million with whatever the appropriate consulting fee is (perhaps creditable against the success fee) would be reasonable.
As I said, all made up #s, just laying out what an example would look like. Def missed the buy-side part tho, my b.
Thanks NuclearPenguins - so for a 300MM deal, you think as an individual advisor, I could shoot for 4.5M on this Lehman-like method? That seems far out :)
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