Hey guys, I did an internship in CorpDev and I was able to get a small glimpse into how M&A firms make money and the fees they typically charge. However, I was wondering if anyone, particularly at a smaller M&A advisory firm, had some insight into ways M&A advisory firms make money.
Here are some things I came across during my internship:
-M&A success fees (generally 1%, varies as you go up and down deal size)
-M&A breakup fee (if deal doesn't go through, from what I saw it was like 10-20% of the M&A success fee)
However, I did some searching and I had a couple things I was wondering about:
-How much do fairness opinions typically cost?
-How much does a retainer fee typically cost?
-What are other advisory services that boutique IBs offer to their clients and what do they charge? During my internship I saw an activism threat/defense report for the company I worked for and I was wondering if banks charge their clients for this service.
I know that these fees can vary greatly, but I was wondering where in generally they start.
Unfortunately, there is no clear cut answer. It depends on the deal size, deal dynamics, etc.
Lower middle market transactions may have $5K monthly retainers vs. $50K/mo. for upper MM. We usually set our up-front fee equal to 3 months monthly retainer.
Our shop has placed success fees as high as 3.5% on sizable deals based on the likelihood of the deal closing and the amount of work involved and as low as .75% on a large, straight down the fairway deal.
I can't comment on fairness opinions, but retainers for a boutique typically range between $10,000-$25,000 a month for a specified period. They get credited against the minimum success fee if the deal closes. Most firms charge a minimum success fee
Thanks for the fast responses guys.
So what is the retainer fee for? Is this the fee just for the deal flow pipeline/M&A market knowledge or does it also include random ad-hoc tasks such as the activism threat evaluation that I mentioned in the OP that the client can just ask for.
I also noticed that a decent amount of M&A firms also do recapitalizations. What are the typical fees for a recap?
The retainer is setup to ensure that the IB is getting paid something while doing its work to prep the deal, market the deal and run the process. That way, if the transaction falls apart or the client decides to go another direction, the IB still gets something.
activism defenses i've seen have a separate engagement letter. fees are negotiated on a case-by-case basis.
The fairness opinion fees I've seen have been $2-4mm on deals of 500mm-2bn+. It's also not uncommon for these to be credited against the success fee if the bank is also the sellside M&A advisor. Obviously it's become more common in recent years to get a separate advisor for fairness only - that is a great role for a bank in terms of payoff to workload ratio
Agree with this. My firm does a decent amount of fairnesses, and they are typically $2 million - $4 million if all we do is the fairness. If we're advising more broadly, we'll typically get a smaller fairness fee when we deliver the opinion (i.e., not at closing like usual) and the opinion fee is creditable against the success fee. I'd also just note that fairness opinions are much more independent of deal size - a $1 billion and $20 billion deal could both have a $3 million fairness fee.
As for defense assignments, we generally get paid if some period of time elapses (6 months or a year) after a pre-defined event occurs (hostile bid, activist files a 13-d, etc.) and the company hasn't transacted in any way.
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