Tailoring Transaction Advisory Fees to Client Objectives
As a business owner contemplating a company sale, a strategic acquisition, or business exit planning, you will likely require the expertise of a transaction advisory firm. One essential aspect of this partnership is understanding the compensation methodology. This article offers insights into the various fee structures related to mergers and acquisitions (M&A) offered by the Astria Group, aiming to better guide your strategic initiatives.
Overview of Fee Structures in M&A Process
Transaction advisory fee structures are a vital aspect in the orchestration of a successful M&A deal. There are several components to this structure, all intended to create a beneficial outcome for both the client and the advisory team. These terms are negotiated upfront, ensuring agreeable terms and transparency. When choosing a transaction advisor, you should evaluate various aspects such as the services provided, your comfort with the team and their expertise, track record, industry specialization, and their network of relationships with prospective buyers. Typically, the M&A fee structure encompasses three elements.
Components of the M&A Advisory Fee Structure
Source: Astria Group
Types Of Fees and Timeline
Retainer fees are upfront costs paid by the client to the transaction advisor, which are determined based on due diligence, associated risk, and market activity. This fee ensures a commitment from both parties and solidifies a unique partnership aiming for the best possible outcome. Although a fraction of the total costs, retainer fees guarantee client commitment to the transaction.
Transaction Advisory Retainer Fee Goals
Source: Astria Group
Success & Incentive Fees
The success fee is paid upon the successful closing of a transaction and is calculated based on a predetermined percentage of the total deal value. Often, these fees contain incentives to encourage transaction advisors to reach the client’s transactional goals, usually value maximization, and time considerations. The success fee is an important consideration for both the client and transaction advisor.
Usually, smaller transactions tend to have higher success fee percentages. An appropriate success fee structure motivates the transaction advisor and aligns with the client’s transaction objectives. The success fee should represent the value contributed by the transaction advisor. Astria generally aims to create consensus with the client based on a bell curve analysis that estimates the market value of the business and ties that to a fee structure that rewards the advisor for exceptional performance. There are many ways to structure these fees, and the transaction advisor aims to negotiate an agreement that is fair and reasonable for both sides.
Other Advisory Services
Not all services by a transaction advisory firm follow a typical fee structure as discussed above.
Certain businesses may benefit from consulting services in addition to transaction advisory services. At times clients opt to outsource certain aspects of the due diligence process to the Astria team. These other services often come at an hourly rate or a fixed project price to prepare them for a sell-side transaction. An hourly rate may also apply to other financial advisory services including performance improvement, interim management, and valuation advisory. Astria Group specializes in offering tailor-made, enterprise-wide solutions to enhance organizational performance and to maximize shareholder value across all stages of the business cycle.
Reach Out to a Senior Advisor at Astria Group
As transaction advisory fees are highly dependent on the transaction type and clients’ circumstances, initiating a conversation sooner rather than later is always best practice. Whether you need M&A advisory or other business exit planning services, Astria Group is here to assist you.
For questions about our fee structure or to learn more about Astria Group’s comprehensive range of transaction advisory services, reach out to us today.