Is it as simple as a percentage of deal size (similar to residential real estate where both buy- and sell-side advisors get something like 3%)? I also noticed that some bulge bracket banks have lower deal volume but generate proportionately higher revenue from fees. How do MDs differentiate themselves to achieve this?
EDIT: I meant to ask about sell-side M&A deals but am open to any information on fees for loans, IPOs and private placements.
I can opine on underwriting and best efforts fees on BB to B/B2 M&A or LBO deals (or best efforts refinancing / div recap). are u asking this? this is in terms of the leveraged loan space BTW
This might vary from bank to bank. For most sell-side banks it will be a fixed percentage of the enterprise value in the majority of cases, usually in the range of 0.5-1.5%. There's also a growing number of deals that include some sort of "kicker", given that the deal team reaches a certain threshold valuation. This incentivizes the bankers to increase the effort in negotiations in order to get the best possible valuation for clients - at least that's how you would sell it. One way to do it is to base it off the EBITDA multiple: 0.75% of the EV up to 8x. 1.5% of the EV between 8x-10x. 3% of the EV above 10x.
working for a small sell-side M&A shop this summer...they almost always structure deal fees with a step structure like above^
Yeah, we do the same for some of our deals. Where we've acted as joint I've also seen "discretionary" fees being added, as in "if we do a good job we can ask you for a higher percentage" on top of the fixed fees. .
Hi QuiltEmerson, thanks for the info. Yeah I was referring to a sell-side M&A. How do MDs decide when to negotiate that fee based on the target multiple you mentioned? Is it a standard that they offer to all sell-side mandates, or do they offer that only when there’s high likelihood of a buyer? Thanks!
If you are doing the step-fees it will be a discussion from case to case. Tech companies are trading at different multiples than construction or machinery companies and you want the barrier to be low enough so that it becomes motivating for the bankers, but not so low that you are overpaying a lot for the services. Analysts at the bank will usually have a fairly good idea of how to price the business and in more traditional sectors it is seldom that the valuation range miss the mark by much. The tricky part in the negotiation is to get the client on board with the valuation and where the next percentage step starts. The majority of people believe they are above average at driving, just like the majority of CEO/owners believe their company should be trading at above average multiples,
Should be a thread on this somewhere but its generally a % but can be a big spread from bank to bank and deal to deal; as well as type of deal. Debt, financing, merger, ipo all priced differently. was there a specific you were looking to have answered?
Hi thanks for the response, I was referring to a sell-side M&A. I’ll make sure to edit my post so it’s clearer.
Would you have any info on that? Thanks!
I'll comment from the loan space of fees bank receive for underwriting deals I'll focus on the leveraged finance capital markets space, but start in IG for perspective
Investment Grade ** **Upfront Fee (Refi) / Structuring Fee (M&A Bridge Loan)
BBB/Baa2 to BBB-/Baa3: Refinancing: Revolver/Term Loan (Upfront Fees: 20 bps) M&A: - Bridge Loan (Structuring Fee 20 bps)
Underwriting Fees: Term Loan B
BB+/Ba1 to BB/Ba2 Refinancing: Revolver/TLA (Upfront Fees: 10 / 20 bps old money / new money) M&A / Transformative M&A: Term Loan B (Underwriting Fee: 1.00% - 1.25%)
BB-/Ba3 to B+/B1 M&A - Term Loan B (Underwriting Fee: 1.625% - 1..75%)
B/B2 to B-/B3 Typical LBO /M&A deal - UW Fees -1st Lien TLB: 2.00 - 2.25% 2nd Lien TLB: 2.50 - 2.75%, even 3% (+.50% from 1L)
Best Efforts Fee: Term Loan B B/B2 to B-/B3 Term Loan B (Best efforts fee: 1.00%)
BB+/Ba1 to BB/Ba2 Depends - seen best efforts fees of like 30-35 bps for a huge issuer.
if anyone disagrees, please chime in for more data points
Hey thanks for this. I'm curious why underwriting fees get higher as you get closer to the high-yield types? I know that interest rates are high for high-yield loans but was surprised to see that baked into the fees as well.
do you understand what underwriting is, as the role you take as a lead bank/underwriter? it’s ok if you don’t, but better you understand to hell explain why
Obviously because when they underwrite it goes on their balance sheet if they can't sell the any of it or can only sell it partially. They don't want to leave high yield credit on their balance sheet; banks have risked-weighted asset requirements. So in order to compensate for this risk, they require a bigger payday.
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