What added value does an M&A advisor offer?

M & A consultants (M & A = Merger and Acquisitions) ensure process reliability. This helps to avoid expensive and time-consuming mistakes.

The consultant has an outside view of things, is neutral, objective and free of obstructive emotions.

He knows the sequence of necessary steps, is focused on the essentials and sets up a structured process. In consultation with the seller, a project plan with milestones is developed.

An advisor who is well connected in the industry as well as in the respective region ensures that the circle of buyers is large enough and increases the chances for a successful sale.

A discreet approach is essential. If the intention to sell is made public too early, this can have a very negative impact on the company, be it through employees quitting, unsettled customers or suppliers. A consultant is a middleman and offers discretion. In addition, he knows when which information should be disclosed to whom and in which situations caution is called for.

Based on his experience, a good advisor recognizes dubious and financially weak purchase candidates at an early stage and can exclude them from the process. This saves time and prevents indiscretion.

In the negotiations, the consultant knows the usual regulations but also the stumbling blocks and can introduce new ideas. He can address possible critical points in advance. By listening carefully during the negotiations, he can avoid misunderstandings which, in the worst case, could lead to a breakdown of the negotiations.

There are two types of consultants. There are advisors who accompany the entire sales process from preparation, through the search for a buyer, to the conclusion of the contract, including coordination with lawyers and tax advisors. The other group is comparable to a real estate agent. Here the service is limited to the search for potential buyers in the role of an intermediary / broker.

For small businesses, this option may be sufficient and usually only involves performance-based costs.

What can’t a consultant do?

The consultant can take a lot of work off the hands of the business owner to keep the time burden to a minimum, but there will still be work for them to do. Especially in the beginning, the consultant is dependent on the cooperation of his client to gather all the information necessary for the sales process and to gain a deeper understanding of the company. Likewise, the necessary time resources for personal meetings with potential buyers and their preparation must be planned.

Bringing in an advisor is no guarantee that the company will be sold. There are companies that are actually not for sale. In this case, it may be advisable to wait for some time and introduce measures to improve the attractiveness of the company.

What does an M&A consultant cost?

A serious consultant will get an overview of your company without obligation and free of charge, work out your goals, sales strategy and needs together with you and then make you a written offer.

If you commission the consultant with the entire sales process, including preparation, buyer search, negotiations, etc., the fee model usually consists of a fixed and a performance-related component.

Fixed consultancy costs (basic costs, retainer)

A sales process usually takes 6-12 months, but can also take years and requires a lot of work from the consultant, especially in the beginning. The fixed part of the fee is primarily intended to ensure the seriousness of the intention to sell and to cover at least part of the consultant’s costs in the event that the client changes his mind in the middle of the process and no longer wishes to sell. This can be in the form of a one-off payment at the beginning, payments when certain milestones are reached (e.g. completion of documentation, first meeting with the counterparty, etc.) or defined as a monthly amount (the so-called retainer). There are different models for monthly payments. Sometimes you will only be charged for the first 3-6 months, sometimes for the entire duration of the sales process. There are a few consultants who forgo a fixed component for the entire sales process. These usually have a much higher performance-related component. If necessary, it can be negotiated that the fixed cost share is offset against the success commission in the event of success.

Flat fees are usually based on the consultant’s expected volume of work (especially for company documentation). For smaller companies with expected transaction values in the range of EUR 1 to 5 million, they usually total EUR 5,000 to 20,000 with monthly payments in the range of EUR 1,000 to 4,000.

Performance-related consulting fees

Consultants generally work predominantly – if not entirely – on a contingency basis. The lower the expected sales price, the higher this percentage, since the amount of work depends less on the transaction volume and more on the complexity of the situation and the transaction. An additional determining factor for the level of remuneration is the saleability of the company and the estimated length of time the process will take. Consultants with a lot of experience and a good network in the respective industry can justify a higher fee, as the chances of sales increase significantly.

Below you will find a rough indication of the usual performance-related components for a consultant who accompanies the company owner comprehensively, intensively and throughout the entire sales process, including an active and systematic search for a buyer. These are to be understood in combination with a fixed, non-performance-related component .

Success commission in % of the sales price

< € 1 mn: 5- 10%

1 – 3 m €: 4 – 7%

3 – 10 m €: 3 – 6%

> 10 m €: 1 – 3 %

A minimum fee may be agreed.

If the advisor only acts as an intermediary/broker and does not otherwise accompany the sales process, he also receives a commission, but the percentage is lower.

If you do not wish to entrust the consultant with the entire sales process, but only require assistance in certain areas, such as the preparation of the exposé, you will be invoiced on the basis of an hourly fee / daily rate. Usual daily rates range between 1000 and 2000 €, whereby the amount does not say anything about the efficiency of the consultant and you may come to a lower total bill with a more expensive but more experienced consultant.

Four examples of different fee models

There is no single fee structure for a sales process , and in practice there are a variety of billing models in countless variations.
To give you an impression, some common models are explained below as examples.

Example 1: purely success-oriented

Success fee

The consultant works exclusively on a contingency basis. His contingency fee is 10% of the sale amount. If the sale does not take place, the consultant receives nothing. (There are advisors who hedge this risk with an “exit fee”).

Bill:

Transaction value (purchase price) € 2 million

10% of 2 million = € 200 000

Total fee due: € 200 000 plus VAT.

Example 2: Base and success fee, remuneration for milestones achieved + share of sales price

Basic fee

Upon conclusion of the contract, the consultant will charge a basic fee of € 2,400 (plus VAT) for the consulting concept, research work and the preparation of a blind profile and a company presentation.

The first instalment of 1.800,– € (plus VAT) is due immediately upon signing, the second instalment of 600,– € (plus VAT) after a Non Disclosure Agreement (NDA) has been signed by an interested party.

Success fee

For the first visit of an interested person 900,– € (plus VAT) will be charged.

(a maximum of 3 visits will be charged, further visits are free of charge) Visits are initiated exclusively with the consent of the client.

In the event of a signed declaration of intent to purchase or a “Letter of Intent” from an interested party, the contractor shall charge € 1,800 (plus VAT).

Of the transaction value, the consultant charges a success fee per million € of

5 % up to € 1,000,000, plus

4 % from € 1,000,001 to € 2,000,000, plus

3 % over € 2,000,001

but at least € 25,000 plus VAT in the case of a company sale.

A charge of 1.5 % is made for the assumption of loans or guarantees.

The fee already paid is deducted from the success fee for the transaction value, e.g. 2 visits in total 1.800,– € + a “Letter of Intent” 1.800,– € = 3.600,– €.

Bill:

Transaction value (purchase price) € 2 million

assumption of a credit in the amount of €100,000

1.5% of 100,000 = 1,500 € (credit; reduced percentage)

5 % of 1 million = € 50,000

4 % of 900.000 = 36.000 €

Total success fee = € 87,500

minus

amounts already paid for two visits and a letter of intent amounting to € 3,600

plus

Basic fee in the amount of € 2,400

Total fee due = € 86,300 (plus VAT)*.

*The fixed fee is not offset against the performance fee in this example.

Example 3: Monthly payment plus success fee

Basic fee

The consultant receives a fixed monthly payment of €4,000 (plus VAT) from the conclusion of the contract for the entire duration of the contract (either until the contract is terminated or until the company is sold).

Success fee

The consultant receives 5% of the transaction value (purchase price). A charge of 1.5 % is made for the assumption of loans or guarantees.

Bill:

Transaction duration 12 months

12 x 4.000 € = 48.000 €

Transaction amount (purchase price) € 2 million

5% of 2 million = 100,000

Total fee due: € 148,000 (plus VAT)

Example 4: Hourly fee based on time and effort, chargeable to the contingency fee

Basic fee

Hourly fee 150€

(estimated number of hours for a company that can be sold without problems) Documentation and preparation of figures and research: 50 hours

Buyer approach: 50 hrs

Meetings and negotiations: 30 hours

Contract conclusion and follow-up: 10 hrs

Total remuneration according to time and effort: 140 hrs à 150 € = 21.000 € (plus VAT)

Success fee

The consultant charges 5% of the transaction value (purchase price). In the event of success, the base fee is offset against the contingency fee.

Invoice

Invoicing according to hours worked: € 21,000

Transaction amount (purchase price) € 2 million

5% of 2 million = 100,000

Crediting of hourly expenses to the success fee: – 21,000 €

Total fee due: € 79,000 (plus VAT)

Which consultant suits me? What should be considered in the selection process?

The chemistry between you and the consultant must be right. He must be sympathetic to you and you should have a good gut feeling so that a relationship of trust can develop.

The first appointment is always free of charge and without obligation and serves to get to know each other. If necessary, talk to several consultants and compare the offers.

You may also find that an advisor declines your mandate, either because the transaction volume is below his minimum or because he feels he cannot contribute what is necessary to a successful sale. Don’t take rejection personally.

In principle, a distinction must be made between pure brokers and M&A advisors.

An intermediary/broker is limited to finding a suitable buyer, M&A advisors cover the entire sales process.

You should be able to expect expertise from any advisor. There is usually a listing of reference projects on the website to show that the necessary experience is available. Process reliability will be higher with an M&A advisor than with an intermediary/broker.

Industry and market knowledge, on the other hand, is not always a given. Particularly in the area of sales of small and medium-sized companies, one finds predominantly generalists, as the market is too small to specialise in one or a few sectors. It is important that the consultant understands your business in detail in order to be able to estimate the circle of possible interested parties and to present the potential of the company well.

It is advantageous if a consultant or a project team is permanently assigned to you and you enjoy full attention there. Ask specifically who will do what work in the process, not have your project end up on the desk of an inexperienced analyst.

Beware of dubious advisors and brokers!

Be suspicious of unsolicited advertising calls or emails, especially if they try to force a consulting contract on you by saying they have a buyer for your business. This is not a serious approach.

In general, never be pressured into signing a contract.

Get references and don’t be afraid to check them out.

Make sure that the services are clearly defined and the costs are transparent. When are the payments due?

Make sure it is possible to stop the process at any time at a manageable cost.

Don’t be pressured into accepting a lower price because the consultant fears for their contingency fee if negotiations fail.