What Is the Fee Structure Like For MM Volume Shops Doing Sub $100M Deals?
For say your run of the mill Tech or Industrials, straight down the fairway, $75MM sell-side M&A deal. I just cannot fathom the level of churning and burning through deals that must be done to make money on that business unless the fees are substantially higher than those for large-cap deals. Is it at least in the 2.0% - 2.5% range? Or are people really running full sell-side processes for $750K fees?
Not Tech or Industrials but there are a couple sub-MM “boutique” banks in oil and gas and they’re exactly what you said…churn and burn. They typically are taking 1-1.5% and they literally 1) have small headcount and 2) churn the team…probably working 10-15 deals in various stages at any given point.
I think depends on a lot on the firm taking the deal. I work at a pretty strong MM boutique with avg deals being 300M - 600M with plenty above that and it not being odd but also plenty below too just to "keep the lights on" type thing cause its a small shop and they are "easy" becuase of the nature of the transaction is just smaller.
I've seen my firm do 1M in fees for only a 25M capital raise which would 4% fee. I think we can charge that do to the firm doing on average much bigger deals and clients getting a better "brand" and more "qualified experience" since we average much bigger deals. But for those regional shops that just do crazy volume and average 1M - 100M deal size idk what there fees are like but I'd imagine pretty low became they are always have crazy volume, presumably to make up the fact they they still charge the same 2% on a 50M.
As with most questions, the answer is, "it depends". What are the clients' motivations and objectives? Have there been inbound inquiries? How likely is the deal to get done? Can the company serve as a bonafide platform for MM PE?
There are some circumstances, where you may get to an outsized fee with ratchets, but most are going to price it in the $1.5-$2.5 million range (2-3.5%).
Currently in a super low LMM boutique sell-side shop, deal sizes range from 15-20m. Churn is crazy. What keeps the lights on are retainers which go from 15-25k/month. Success fees are 2-3% or 250k per deal. At every moment there are 4-5 deals live/closing. Work was a living hell yet fufilling and exciting, however due to the shit market and deal volume atm I'am literally watching the the firm crumble every day that passes. literally went from working weekends to leaving at 5pm whilst staring at my screen from 4-5 with nothing. If anyone has any advice on what i shld do please let me know XOXO RIPRIP
I'd look to lateral over another bank maybe shoot for MM or a better LMM that will do up to 100M or 200M
He's gonna have a hard time with that mathematical ability lmao
What are the typical multiples on these size deals?
Depends on the type of business, but in the past during the covid boom years, data analytics/managed services/IT consultancy (aka cloud migration) firms can go 5-9x ebitda.
What about middle market deals whats the typical fee range?
MM fees are normal and consistent with BB maybe a little less. MM just make less money simple as that, from what I know at least
Stupid question, I just signed at a MM boutique which pays above street. How can they (and other similar firms) afford to pay above street if they simply make less money?
A lot of MM boutiques are in serious trouble.
Top dogs building out MM practices, interest rates making it tougher for PE to acquire.
Over saturated industry at the MM level.
Would you say this goes for all product and coverage groups or would you say some are safe? Like energy and Lev Fin could be safe and those BB just build out their MM practice in TMT and Healthcare.
The majority of deals out there are MM, it’s not like deal vol is suddenly going to shift to UMM/ billion dollar deals suddenly
Idk man with the price I’m paying for groceries and college the MM deal range sooner or later is gonna be 1b-5b lmao
Depends on the vertical. Fees are also all over the place in LMM as founders / sellers are not as connected to capital markets and average transaction fees compared to larger companies. I've seen anywhere from 2% to 5%.
At a regional no-name doing $25-$50M deals - typically we look for a minimum of a $600K fee and it isn't unusual for us to just put that in the EL if we feel there's a good chance the asset is going to sell for below $20M.
Otherwise we typically have a tiered fee structure that starts at around 2.5% for sub $50M deals.
I’ve worked at a couple LMM firms, and fees are usually in the 2-3% range depending on size. I’ve worked on deals anywhere from $20 - $250MM, and the smaller ones are “to keep the lights on” as others have said while the larger ones really drive revenue. Think $750K (sometimes even a bit less) for those smaller clients, but the average is probably just north of $1MM. A team of 6-8 people usually has 3-6 live engagements at any time.
Would you say that 6-8 people with 3-6 live engagements make really bad hours or do you find it the typical IB hours
Hours aren’t bad compared to a lot of other banks, 50-60 hours on most weeks. When crafting CIMs, pitches, or early in post-LOI DD that can go up, but its not anything crazy. As a point of reference, I’ve worked in M&A for three years now (did ER for ~5 years before) and can count the numbers of nights I’ve had past 2 AM on one hand.
The way to do this right is running an incredibly lean operation where only having 3/4 clients at a time covers your expenses (via retainers) and then any fee above is pure margin.
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