M&A Buy-Side Fees

Clarity in fee structures is a crucial component of any M&A buy-side agreement. However, fee structures can vary significantly depending on various factors, making it impossible to apply a one-size-fits-all fee to all projects.

In the market, there are many different providers of services related to M&A. Most services are concentrated on the sell-side. The buy-side, especially among brokers, is not as popular because fees are typically much lower, despite requiring significantly more work.

Let’s analyze fees based on customer groups:

1. Corporate Investors

The so-called strategic buyer typically engages an M&A buy-side advisor exclusively. They are not just purchasing a service but also the advisor’s network and experience. Even when internal resources are allocated for M&A, it almost always makes sense to rely on external support to focus the in-house team on the integration of the target.

The fee structure for this group is usually a mix of:

• Engagement fee
• Milestone fee (e.g., for management meetings or LOI)
• Success fee upon closing

2. Private Equity

Private equity clients often use deal-sourcing services exclusively for off-market deals, as this is both time-intensive and resource-draining. Engagements are typically non-exclusive, which means outreach is conducted anonymously. Only when a target shows interest is the client’s name disclosed. While this approach has some advantages, it comes with many drawbacks.

Many PE firms have adopted the habit of widely distributing finder fee agreements. This means numerous deal-sourcing agencies target the same prospects. Many deal-sourcing providers accept agreements based solely on finder’s fees. However, we reject such agreements. We only work with new clients who have “skin in the game” and aren’t merely relying on a lucky break.

The common fee structure here includes:

• Engagement fee (credited toward the success fee)
• Success fee upon closing

3. Search Funds

Anyone familiar with Stanford University’s statistics knows that only a small percentage of search funds (whether traditional or self-funded) successfully close a deal or find a suitable target. Search funds typically lack proof of concept or a track record, which makes it harder to generate interest from targets. As a result, the likelihood of success for the service provider is also lower.

Our fee structure for this group mirrors that of private equity, though with a reduced engagement fee:

• Engagement fee (credited toward the success fee)
• Success fee upon closing

It’s actually quite simple. Professional M&A buy-side support, advisory, and sourcing involve significant effort and investment from the service provider in the client’s deal. Quality should be the top priority, as both the provider’s and the client’s reputations are at stake. We are aware that some providers offer their services on a “success fee only” basis.

However, this approach typically relies on automated outreach and generates a large amount of waste—or “scrap,” as one might say in metalworking.