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What is an M&A Advisor Worth to You?

By Generational Equity

M&A Advisor Worth

The old saying goes: You get what you pay for!

This is absolutely true when it comes to hiring an M&A team like Generational to represent you in the market. Can you sell your business on your own with no professional representation? Of course you can – it happens all the time.

However, history is littered with deals that close that are less than optimal for the seller. Either the price is too low, the terms and structure are awful, and/or you get stuck with an earn-out that is impossible to meet; all of these scenarios cause you to look back later and realize that you most likely left thousands (if not millions) of “chips on the table”.

For these reasons (and many more) we highly advise business owners to not go cheap when it comes to monetizing their largest asset.

Recently the highly respected company Firmex published a study on standard fee structures in the middle-market M&A arena. The study was in-depth and quite comprehensive. Entitled “M&A Fee Guide 21/22”, Firmex partnered with Axial to produce a great study. Here are a few of their findings:

It is the first time we’ve asked these questions when the overall economy and the market for many mid-sized companies was so uncertain. The COVID-19 pandemic has buffeted businesses from all sides: travel restrictions, retail shutdowns, work at home orders, masking requirements, labor shortages, vaccine mandates, and inflation fears to name a few.

Amid this turmoil, merger and acquisition advisors in the Americas serving the middle market say that deal flow is returning after a slowdown in 2020. Throughout this period, our survey shows they see very little pressure to cut their prices. Indeed, the survey suggests that if anything, fees are rising somewhat.

I would speculate that fees are rising for two reasons: More demand from sellers to get help moving on AND the reality of our times and the new normal – experts are in demand especially in M&A, now more than ever!

So that raises the question: What fees can you expect to pay when you engage with an M&A advisor? Firmex/Axial found:

Five out of six advisors charge a fee for their effort to sell a business that is payable whether or not a deal is consummated. These are often called work fees, engagement fees, or simply retainers. The most common (42%) structure for work fees is a fixed amount. Monthly retainers are the second most common structure and increased to 35% of advisors in the survey from 25% last year. Only 9% of advisors charge hourly work fees. While the survey data reveals a broad mix of retainer fees, it’s highly correlated with transaction size in our experience. As such, the higher the transaction value, the higher the retainer fees will be.

So based on the Firmex/Axial research, fully 77% of intermediaries in the middle market charge a commitment fee of some sort. Of course, this makes sense given the tremendous amount of prep work a firm has to undertake in order to create documents that are accurate and believable to buyers.

One of the reasons we have been so successful over the years is that our experienced team of valuation and deal making professionals are highly skilled and experienced in determining value, developing growth strategies, and walking with the business owner and his family along the exit journey.

As I said at the outset, you get what you pay for. Past success is a credible and authentic predictor of future success. We have the track record to prove it. Here is what a few of our clients say about our work:

And of course, success is the final goal and the ultimate ROI:

The common theme if you listen to these folks is that the commitment fee was well worth the price of admission, worth every penny in fact (good news: except in CA the commitment fee is fully refunded from the success fees at the close of the transaction – we adjust our success fees in CA to account for this). And as for success fees:

Advisors are split evenly about how to structure their success fees. Roughly two out of five use a scaled percentage that increases when the purchase price exceeds a set threshold. Another two out of five use a flat percentage rate. The remainder use what’s known as the Lehman formula, or something similar, in which the percentage of the fee declines as the deal size increases. The share of advisors using each success fee structure didn’t change significantly over the last year.

FYI, Generational uses what is called the “double Lehman formula” to calculate its success fees. Generally, as the sales price goes up, the percent paid goes down.

So, the bottom-line as I see it is this: You can try to find a buyer on your own and hope for a good deal (or one that even closes) or you can INVEST in your business by hiring a professional advisory firm that helps take your business to the next level and be there throughout the entire process.

This truly is probably the most important investment you can make in your future (and your company) right now. Don’t go cheap, fees are a reality. As Firmex/Axial have proven, the vast majority of firms require some form of commitment fee and success fees when the deal closes. You can calculate the ROI all the way to the bank!

PS – If you want to hear more from our clients you can do so here and here.

Carl Doerksen is the Director of Corporate Development at Generational Equity.

© 2022 Generational Equity, LLC All Rights Reserved

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Thanks to you, the entire GE team and especially Michael Goss for driving a great valuation, coaching me and driving the process across the finish line. Please let me know if there is anything I can do to support GE going forward.
Tom Currier, Former President & CEO, Rackmount Solutions
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.
Terry D. Wickman, President, Keytroller
The professionals at Generational Equity then helped develop a roadmap for enhancing the value of the firm and an evaluation report. This was completed by June 14, 2021. We then developed the Confidential Information Memorandum and put Taylor Studios, Inc. on the market by July.
Generational Equity’s professional staff helped me every step of the way. Their network and professionals are the only reason I sold my company this quickly. For me this is a once in a lifetime sale and I was unfamiliar with the process. I was able to lean on them with questions and concerns.
Betty L. Brennan, President, Taylor Studios
We were represented by Michael Goss with Generational. The due diligence was grueling and exhausting, but Michael propped us up and kept us motivated throughout the process. Debi and I continued to ask each other how we could possibly make it through this process without the assistance of Michael. Michael's professionalism and knowledge is absolutely amazing, and we are so blessed to have had him by our side as we made our future dreams come true.
Bob and Debi Lee, Owners of BL Technology, Inc and BL Tl Services, LLC
We thank you Eric and Generational Equity making our dream come true.
Larry Moore, Owner, A Company Portable Restrooms
I need to say an immense thank you to Don Ho for his stellar work ethic, attention to detail, and tireless effort. Also thank you to the whole crew at GE! Without you, Don could not do such a phenomenal job. We were shooting for closing and funding before the end of 2020, due to the uncertainty of the political landscape and taxes. I am happy to report we closed last week and will be funding tomorrow.
Dr. Caty J. Catron PhD, RN, VA-BC – Owner, Vic The Picc, LLC
After attending a conference with GE, I decided that the value they bring would be worth the expense and as soon as I started working with them, I realized that was the right decision. When we started to get LOIs, Fred Zweifel took the lead on the communication and supported negotiations throughout the process, which got tricky as we moved forward. I learned that it can be common for companies to make a great offer then work to erode that price with their discoveries, but Fred and the GE team kept that from happening.
Caroline Connelly, CEO, OptoTest
I am pleased that I was able to work with Andrew Byrd throughout this experience. From the first meeting we had in Minneapolis I felt that I was in good hands. His knowledge and expertise is second to none. He guided the process consistently throughout. I feel lucky that I was pared with Andrew and could not be happier that I chose Generational Equity to handle this major life event. Thank you Andrew and GenEq for everything!
Eric Erlandson, Owner, Action Fastenings, Inc.
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.
Terry D. Wickman, President, Keytroller
I must say that I have never worked with a more driven, competent and focused individual as Don Ho.
Jay Dinnison, Owner of Sharpe Mixers
T.D., thank you so much! You are a great leader! I love how you are using your gifts and talents to better others. You are clearly a GREAT COACH! This 3 day session undoubtedly changed the future of our business, and very well may have been the sole catalyst to save my company, my health and my marriage! A genuine “thank you” from the bottom of my heart.
Bryan D. Horn, Owner, Over Under Clothing
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.
Larry Moore, Owner, A Company Portable Restrooms
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.
Ralph Noblin, President of Noblin & Associates
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).
Bil MacLeslie, CEO, ipHouse
I decided to attend the conference and hopefully receive some guidance on how to structure an exit plan of my business. Upon arriving at the conference, I was so impressed with the presentation given by Generational Equity that I set a future appointment that week to discuss the possibility of selling my business with their Senior Managing Director David Robinson.
JoAnn Ellis, Owner of Fondren 5 Star Kennels
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.
Bil MacLeslie, CEO, ipHouse
We had the pleasure of working with Mr. Ahmad Behjati Managing Director, M&A, for Generational Equity during our acquisition of Papa's Dodge in late 2021. Generational Equity and Mr. Behjati represented and marketed Papa’s Dodge. As our primary contact, Mr. Behjati was professional in every facet of this acquisition process, conveying valuable advice most times and assisting us in every step of the process.
Rick Greene of Dobbs Equity Partners LLC
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.
Robert Evans, President and CEO of Mealtracker Dietary Software
Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.
Pete L.
The most important contribution I think Ahmad made was with his personality and work ethic. He is sincere, efficient, and very hard working. He was available to me at all times, whether it was for specific detail of the negotiation or just to talk through the bigger picture. He listened, advised, and recommended, but never forced his idea or opinions. In the time we worked together, he became a valued colleague and also a friend.
Salvo Stoch, Founder and CEO of Sleeping Partners
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.
Jay Dinnison, Owner of Sharpe Mixers
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.
Robert Evans, President and CEO of Mealtracker Dietary Software
Through the sale process, Generational brought in several interested buyers and we closed in about 6 months. I am so glad I accepted that invitation to the conference and could not be happier with the whole process. The team at Generational coupled with their knowledge and guidance was so valuable that in the end, I know I could never have done this on my own!
JoAnn Ellis, Owner of Fondren 5 Star Kennels
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
I wanted to take this opportunity to thank you for all that you have done for us. Not only did you take care of all the aspects of the sale but took extra care to make sure we knew what it looked like every step of the way. I will definitely recommend your company to anyone that is in a position to or looking to exit their business.
Shane and Johanna Kline, Owners of Vision Upfitters
Generational Equity’s assistance was invaluable in compiling and marketing our business.
Bil MacLeslie, CEO, ipHouse
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.
Andy Graham, Vice President, Modern Heating & Plumbing