Hi Monkeys,
I am a recent graduate from a non-target with approximately 1 year's worth of internship experience in a boutique IB.
A family friend and business owner is looking to acquire a competing company, and has asked if I would perform the necessary valuation and cash flow modeling. From my understanding, the work would be relatively straightforward (assuming no butchered financial statements or other issues that are common with lower middle market/small market companies).
However, I have no idea what to ask for in terms of compensation. We already agreed that it should be contractual work that is billed at the end of the project, but I have no idea what rate(s) to charge. I would not charge the usual banking fees since I am not an experienced professional, and I do not have the ability to provide full IB services. If it helps at all, they are looking at a transaction value of ~$500k with a 3-5 year earnout.
Do you have any suggestions on fees/compensation?
No idea, but good luck. Sounds like a really cool project that I would be interested in if I had the time.
You're not worth more than $25-30 an hour.
Well you are not doing much with regards to the transaction itself so I don't believe you deserve a success fee but I think a work fee should be paid. Either a lump-sum or monthly fee depending on how long he expects you to work on it... Maybe $2,000-$5,000 total. At an average boutique or MM they would charge a monthly fee upwards of $10,000 for those services. If you want to be on the high end why dont you offer to make a pitchbook and put a list together of potential targets? It will give you more experience and more leverage when asking for money
Agree with Turtle, try and bill $2-$5K. I've done this before at a $200-250/hr clip. But, given you have minimal experience, I'm not sure if you could bill at that rate. How many hours really depends on the level of detail (i.e. do they want a detailed operating model?) and your involvement in obtaining the financial statements and structuring the deal. If you think this will be quite intensive, bill towards $5K. If not, bill towards the lower end of the range.
Thank you for all the great replies.
Correct. I am not structuring the deal, though I am expected to make comments and suggestions. The owner already has a general idea of where he wants to go ($500k + 3-5 year earnout). I am essentially providing a foundation for that valuation and creating the necessary models and documents to obtain bank debt for the deal. While the pitchbook is a great idea, this is essentially a buy-side engagement. The owner already knows exactly what company he wants to acquire, and he has been in talks with them already. They are a current supplier, so the two companies already have a close working relationship.
I will be finding out more over the next few days, but it seems that I will be expected to create a 3 statement model and at least a DCF for valuation purposes. From our initial conversations it also seems that I will be contacting the target company directly to acquire the necessary financial statements, management guidance, etc.
This sounds way high, given you have very limited experience and are only building a model. You should expect something closer to $500.
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