hey guys,
I need to find stats on single-deal compensation.
Hope you can advise.
My co-worker just closed a deal that netted our firm (a large family-owned real estate developer/owner) about $12mn without us putting any money at risk.
Basically he found a big deal, and since we're too small to do the deal ourselves, he introduced a PE fund to be our co-investor. Sensing correctly that our cheap-ass founders probably would walk away from the deal for fear of putting their own money at risk, my colleague structured a finder's fee into the deal, due whether or not the deal closed.
So we are walking away, and the PE firm is paying 0.5% of the deal - netting us $12mn.
Management has asked me to benchmark how much deal-based bonus and annual bonus he should get, as right now, we have neither. Our annual bonus is 0. We're paid $200k as director-level employees.
Many thanks.
How did your colleague locate a $2.4 billion deal?
got it from a broker/FA. It was a marketed deal, and he made it come together.
Give him 20-25% and call it a day. That’s a monster fee.
Indeed I hope to help that happen. But I need data to support this case. Hence I'm here, asking for data. Otherwise management will just say "Thanks, and here's your 1 month pro-forma annual bonus" . And then he'll likely quit.
The key is to find data to support him getting a big bonus. I need stats to back it up.
My very small two cents, it sounds like there could very easily be nothing for your firm, but somehow, through your coworker, you have $12 MM, If I were the firm, I would be really happy to get $1.5 MM. It just seems like a lot of this would be case by case and it could be difficult to find a similar case, it is unfortunate that your firm is trying to have you figure out how small a number you could justify giving him (I know you are working to get him more, but I am not sure your firm is). It seems like if I were the firm in this situation, I would just talk to the guy, "so, we just got this $12 MM windfall, how do you feel this should be divided?" it seems reasonable that he might say something like "I would like the full $12 MM" and it also seems reasonable for the firm to say "Ok, we figured, no problem" EDIT: It just feels like a hand that feeds
I could use carried-interest calculations. I can use stats to justify a Director getting X% of carried interest. If this windfall is seen as 100% carried proceeds he would get - say 5% - of this, as standard for a director.
That is a smart idea, at the same time, whatever carried interest stat you get, you would need to account for the fact that this is a little different:
It seems like a statistic on carried interest for developers would be a good start, but the points above should push it up, the more you can push it, the more your co-worker will want to buy you a steak, or maybe you could make a deal with your coworker for a waterfall on everything you can get him above the director carried interest statistic. /s
How many years of experience would a director have?
10 -15
another thought might be the broker to agent split in sales, because this feels a lot more like that.
I don't get your meaning. We're not brokers - we're investing capital from a family-owned developer. The broker has already been paid. However the PE fund partner we sourced is paying us a 'finder fee' for bringing them the deal and then walking away.
I understand, I was trying to say a similar concept to what MonkeyWrench said, he just did a better job.
It seems like a crime for him to get anything less than $1MM.
A foreword.... Someone making $200K while bringing in this kind of production / doing this kind of work with no structured bonus/commission agreement puts up a ton of red flags to me.
Getting to the question at hand, on a deal that size I agree that anything under $1M would be absurd. Candidly I think that 25-30% would be fair. In a lot of cases, acquisition fees on a deal are anywhere from 25-100bps depending on many factors. Let's take the median view that it's 60ish bps as industry 'average'. So 60 bps on 2.4 B is $14,400,000. You could argue that they are light to begin with. It's really a mixed bag, as I know a lot of different comp structures and all-in figures from different firms/colleagues. I think that $4 M would honestly be fair.
Just to give you a frame of reference, and I know it's a little different because it's on the brokerage side, but there's a large transaction scheduled to close soon (call it $2 B) and they are paying the broker a full 100bps on it. Not a typo. Now, obviously that gets split a lot of ways, but for discussion purposes I'd argue that at worst, each of those brokers was probably walking away with safely 2-5 M depending on how many mouths were on the team. Since your co-worker basically acted like an inside broker on this deal, I think that $ range is fair. The company still gets a shitload of money and your friend also gets a huge pay-day. They won't end up giving him that much, which is fine, but you can say you went to bat for him and hopefully he returns the favor.
Thanks MW.
You really know the business of brokerage. Do you have stats on industry comp I can use to make the case please? It's easy to dismiss anecdotal info. It's harder to dismiss actual stats and reports. Do you have anything I can use?
Another relative proxy... My buddy works for a brokerage whereby most of the director/Senior MD level guys are paid a base of $100k-$200k.
Upon producing 2.5x-3.0x your base you participate in 50/50 split above that. Not sure how much it slides after that.
I understand you’re not a brokerage but in this case it seems like you operated as an intermediary. There’s a sweet spot somewhere here.
If the principals stiff your colleague I hope whole world finds out and they wear that stain for the rest of their careers. That would be absolutely fucking disgusting.
I agree with you guys. Brokerage comps are probably the most reasonable to use here, since we're not acting as a proper PE shop, and with no money at risk, that's just apples-to-oranges comparison. For a PE shop, carried interest at director would be ~5%, and ~10% as an MD. But in this case, since no capital was at risk, I think the return should be higher than if there was capital at risk.
So, does anyone have formal sources of broker deal-based compensation? I appreciate the above anecdotes but I need published facts to be able to back it up when presenting to Management.
PM I may be able to dig something up
It's really hard to grab verified commission numbers from public sources, your best bet would be to scour some articles, sometimes they will list them there, sometimes they won't.
In any case, good luck. If you don't mind, it would be really interesting if you're able to report back to how this ends up shaking out. I think most of us on here would be genuinely curious. This could result in a very wide range of payout scenarios.
I second this, it would be interesting to hear back. this is kinda like a hybrid of an acquisition fee divided up like Trunk Yeti mentioned and the brokerage split MonkeyWrench mentioned. At the same time, your co-worker should be higher % in both cases because there is no risk to your firm (acquisition fee would be an acquisition that has risk because maybe the individuals receiving the acquisition fee screwed up in due diligence and screwed the firm by not finding something, but they still kept the acquisition fee) (and should be higher than the brokerage split because brokerages have a lot of overhead tied up in getting that commission) If you can present statistic splits for both of those and demonstrate that it should be higher for your coworker because of the 0 risk, I think that is close to the truth, anecdotally with Trunk Yeti's 30% split, should be bumped up to 40 - 45% in this specific case.
As somebody in PE at the director level do you not have brokerage contacts you can call to ask for compensation structure details?
At my firm if we source an off market deal based on our own relationships then we get 30% of the acquisition fee. Doesn’t matter if you’re an analyst or the CEO. You and your coworker should ask for 30%, and then take the money and spin out into your own GP. $3.6M can become $72M of equity with a LP. $72M can leverage up to $180M of buying power assuming 60% LTV. Seems like you already have a LP you could JV with as well.
What of the remaining balance of the fee?
If our acquisition fee is 1%, usually it looks like this for an off-market deal:
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