Typical M&A Fees – What Business Owners Can Expect to Pay

Trying to find specific M&A costs can be difficult, but that’s because there are a number of variables that can alter prices significantly. That being said, we’ve compiled a list of the typical M&A fees that UK business can expect to encounter during any deal. By familiarising yourself with these, you can at least gauge a rough idea of whether a merger or acquisition is right for your business.

What exactly do M&A fees pay for?

There are several costs involved in a successful merger or acquisition, but in general, the fees mentioned in any deal refer to M&A advisory fees. These make up the payment for the business advisory firm handling the case.

While business owners may be tempted to go it alone to save on a small percentage, it is strongly recommended that they don’t. There are a multitude of things that can go wrong and even end up causing owners more money later on. A good advisory firm can use their network and experience to mitigate any risks and provide a much stronger chance of any deal completing.

Beyond the taking on of a heavy workload that entails due diligence checks, market analysis and thorough valuations, an advisory firm’s value lies in their expertise. By organising better terms, lowering risks, bringing more buyers to the table and providing tax advantages, the use of an advisory firm often ends up saving business owners over the long term.

How are M&A advisory fees split?

Typical M&A fees are split in two parts: a work fee and a success fee.

Work fee

A great deal of work goes into any merger or acquisition before a deal is confirmed, so it’s little surprise that many advisory firms ask for an initial payment. Preparation for a deal can take over a year in some cases, and even then, isn’t guaranteed to see its way to completion. After all, both parties must be in agreement throughout the whole process, and it’s each business owner’s right to pull out if they decide to. Because of this, most advisory firms will look for payment that at least covers their preparation work in case one party pulls out.

Usually, the amount of work in preparing the deal will depend on the size of the business. It’s far less time-consuming to prepare a small business than it is a huge corporation, so expect work fees to reflect this. As a result, it’s difficult to provide an exact price, but small businesses will usually warrant a work fee of anywhere between £0 and £55k.

Of course, the difference between free and £55k is a significant one, but you may well find organisations that don’t take a work fee and offer a ‘no completion, no fee’ pricing structure. While they’re usually perfectly legal outfits, there should still be a degree of caution taken if these companies are used.

Ask yourself how a company can afford to sustain itself working for free if it’s performing all the prep work that you expect it to. The answer, unsurprisingly, is that it can’t. In general, you get what you pay for, and if your broker has no work fee, it’s unlikely that they’re doing any work beyond simply listing your company on a sales site.

Success fee

When it comes to typical M&A fees, they’re usually based on a percentage of the final deal price. In general, the bigger the company is, the smaller percentage you pay.

While this may sound unfair at first, it’s important to note that the amount of work involved in the completion aspect of any deal is broadly similar whether the transaction is for £100,000 or £100m. Because M&A fees are worked out as a percentage, this still means that larger deals usually pay more than smaller transactions.

These percentages can vary wildly from company to company, but as a rough guide, the figures below provide some idea of the percentages different-sized deals can expect to accrue.

• £1m and below: 5%-8%
• £1m-£10m: 3%-5%
• £10m -£100m: 2%-4%
• £100m +: 0.5%-2.5%

There are some firms that calculate their fees with different variations of percentage-based pricing. Some may even charge a flat rate regardless of size if they primarily handle similar-sized deals.

Otherwise, the other two options are the Lehman Formula, or tiered pricing. With the former, the percentage decreases for each million involved. For example, the 1^st million may be charged at 4%, the second at 3%, the third at 2%, etc.

Tiered pricing flips this around so that the percentage increases for each million instead. This can sometimes be used to show sellers that the advisory firm is also incentivised to secure the best price possible.

Other M&A costs

Beyond M&A advisory fees, there are several other costs that aren’t always considered.

There may be legal fees involved, especially if you plan to lay off employees as part of the deal. Of course, if you need to let go of staff, you could be liable for redundancy packages as well.

You may also have to pay out to rebrand any businesses that are part of the deal, with marketing, design, and signage all potential sources of extra cost.

Technological integration costs can also be a factor to consider, while lost productivity while the deal completes, and afterwards, when staff are adapting to new workstyles, can have an impact on finances too.

Looking for assistance with your merger or acquisition?

With so many factors to consider, you need the services of an advisory firm that has your best interests in mind. The scores of five-star reviews we’ve accumulated on TrustPilot show that clients can trust us when it really matters. Our experience and extensive network of contacts put us in the best place possible to provide successful merger or acquisition deals.

We have specialists on hand that can help you from step one of the entire process. Call us on 0800 975 0380, or email [email protected] for a free consultation to see what we can do for you.