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The Price of Professional Exit Planning Guidance

By Generational Equity

02/25/2019

In last week’s blog post you may recall that we examined how valuable an M&A advisory firm can be to business owners who are interested in an eventual exit. Several benefits of hiring a professional firm were examined, including:

  • Having an M&A advisor handle your transaction allows you to focus on running the business.
  • You will most likely get an optimal deal with a professional handling negotiations on your behalf.
  • Your deal is more likely to close with less headaches and hassles for you.
  • Skilled and experienced M&A advisors have access to significantly more buyers than you will.
  • The potentially troublesome aspects of due diligence will be greatly aided by having an M&A pro by your side.
  • Since you will probably only sell one company your entire professional life, do you want to learn how to close a transaction on the job?

These are just some of the benefits, and there are plenty of others we could list.

But, this raises the question: Based on these benefits, what should I expect to pay a professional M&A advisory firm to guide me through the process?  

Keep in mind that like all decisions you make, you can go cheap and “hire” your Cousin Larry who has a real estate license but has never sold a company in his life. Or, you can find a local business broker who may sell 1-2 companies a year and conducts most of his marketing at the local country club over gin and tonics.

However, if you want a truly experienced team to represent you, one that will be with you through the entire exit process from the initial business evaluation, the creation of value building/enhancing strategies, development of a thorough list of buyers (including those outside of your industry and local market), and finally, represent you at the negotiating table, you will need to invest some money upfront.

The Value of Exit Planning Guidance

Generational’s model aligns closely with industry standards—but with one important difference: we credit your initial retainer toward the final success fee. (The only exception is in California, where state regulations prohibit this approach; in those cases, we adjust the final fee accordingly.)
Nearly all professional exit planning firms charge an upfront fee to begin working on your behalf. As our colleagues at Axial explain, a typical sell-side engagement involves a retainer fee, a success fee, or a combination of both. Retainer fees—sometimes called work fees—can be structured as monthly payments or as a flat fee for a set term, and generally increase with the size and complexity of the transaction.
Success fees are typically calculated as a percentage of the final transaction value, with smaller deals carrying a higher percentage and larger deals a lower one. Interestingly, the effort required by an intermediary doesn’t always scale with deal size—larger companies often need less hands-on support because they already have greater internal resources.

What is Professional Exit Planning Advice Worth?

The important issue to remember is this: You get what you pay for. Again, you can go cheap and hope for the best or you can invest in your success based on the track record of the M&A firm you hire.

The good news is Generational Equity has a proven record like no other M&A intermediary in North America. In fact, based on Thomson Reuter’s data, no one has closed more transactions over the last decade in the lower middle market than our firm. You can see this using the league tables published on our website every year:

I can guarantee you that no local broker, nor your Cousin Larry, can match our track record.

One other item to consider regarding the retainer fee: It indicates to buyers that you are truly a committed and willing seller.

This actually turns out to be a tremendous benefit to you when we begin to talk to buyers on your behalf. The one thing that all professional buyers lack is time.

Right now, they have plenty of capital to spend, but they can’t find the time to spend it. These buyers don’t want to risk spending 3-6 months going through due diligence with a target only to have them back out at the 11th hour – that is a tremendous waste of time and resources.

Having “skin the game” in the form of an up-front fee can give buyers confidence that you will actually fully engage and close the transaction.

To learn more about why we are worth hiring if you are planning to exit in the next 1-5 years, please see the following links:

By Carl Doerksen, Director of Corporate Development at Generational Equity.

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