What an M&A adviser charges to sell a business

The usual structure

A sell-side engagement normally combines a fixed element, a fee on completion and expenses. There is no official scale: size, complexity, scope and the work involved all change the proposal.

Retainer

A fixed amount, paid monthly or at milestones, that covers preparation and execution whatever the outcome. It should be tied to defined deliverables, a named team and a clear scope.

It funds work before completion and shows commitment on both sides. If it is credited against the success fee, in full or in part, the engagement letter should say how and when.

Success fee

A percentage of the agreed fee base, or a fixed sum, payable on completion. On smaller deals a minimum fee is common because the fixed workload is a larger share of the deal. To compare two proposals, model the fee at several prices and payment structures.

Expenses

Travel, data room, research databases and other third-party costs. They should be listed, capped and subject to your approval. Check whether figures are quoted before or after VAT at 20%.

A warning about large upfront fees

Some firms that market heavily to owners ask for a substantial fee before any work has been done, sometimes presented as a valuation or marketing package, with little tied to a result. Ask exactly what the upfront fee buys, who does the work and what happens to it if no buyer is found.

Tiered scales

Some engagement letters apply a percentage that falls as the price rises, similar in spirit to the old Lehman scale. This example is purely illustrative and is not a market rate:

This structure lowers the marginal percentage as the price rises. In the example, if the price goes from £3m to £3.5m, you receive an extra £500,000 and the adviser earns an extra £20,000. Ask yourself whether that split gives the adviser the incentive you want.

The alternative is a ratchet: a higher percentage on any amount above an agreed target price. Before accepting one, be clear whether the target is enterprise value or equity value, and make sure it does not reward a headline number that comes with weaker certainty or more risk.

What the success fee is calculated on

One 5% fee can be very different from another depending on how the base is defined. These are the points to settle in writing:

• Enterprise value or equity value? On enterprise value, the base can include debt that is then deducted to reach what you receive for your shares. Both are possible, but the difference in pounds should be worked out.
• Does it include an earn-out that may never be paid? If the fee is calculated on the maximum possible price and the earn-out is missed, you may pay a fee on money you never receive. The letter should say whether that part is paid at completion or when the earn-out is actually paid.
• Does it include debt the buyer takes on? The same question.
• What about property sold separately? If it is outside the engagement, it should be outside the base.
• What if you sell only part of the company? It should be covered and proportionate.

The tail clause

It says that if you sell to a party introduced by the adviser within a set period after the engagement ends, the fee is still due.

It protects the adviser's work where a deal with someone they brought in completes after the engagement has ended. It should be proportionate and objective.

• Length. It should bear some relation to the deal cycle and not run on without good reason. Ask the adviser to justify any period longer than the time a buyer would realistically need to come back.
• What counts as an introduction. It should be limited to parties the adviser actually engaged with, recorded on a closed list handed to you when the engagement ends. Without that list, the clause can catch anyone.

Ask for the list at termination and for your own pre-existing contacts to be named and excluded.

Checklist before you sign

• Length of the engagement and renewal: a term that fits the process, with renewal by written agreement.
• Exclusivity: normal, but with named exceptions if you already have conversations under way.
• Retainer: amount, frequency and whether it is credited against the success fee.
• Success fee percentage and any scale, with the base defined without ambiguity.
• How earn-outs and deferred consideration are treated.
• Expenses: what is charged on top, with what cap and with what approval.
• Tail clause: length, and a list of parties contacted handed over at the end.
• Early termination: when, with what notice and at what cost.
• The team: who does what, how much of their time, and what happens if someone leaves.
• Confidentiality, and your right to veto names on the buyer list.
• Regulatory position: whether the firm or its partners are FCA-authorised where the deal requires it, and who carries professional indemnity insurance.

Is it worth it?

The right question is whether a process with an adviser leaves you with more, net of fees, than one without.

A good adviser brings access to buyers, competitive tension, properly prepared materials, process discipline and the capacity to carry much of the workload. Weigh certainty of completion, confidentiality and terms as well as headline price.

A full engagement may not pay for itself on a very small deal, where a buyer is already identified, or on a management buyout. A limited scope can still help: a valuation, preparing information, reviewing heads of terms or supporting the negotiation alongside your corporate lawyer. Our guide to choosing an M&A adviser covers how to compare firms.

Frequently asked questions