The fundamental axiom regarding intermediary fees is that the fee and the amount of fee is in consideration for a constellation of services for originating, marketing, facilitating, negotiating and closing a deal, which go beyond merely introducing the parties or bringing the buyer and seller together. Simply introducing parties to a transaction constitutes a finders’ fee or perhaps a referral fee, and is considerably less costly than a typical mergers & acquisitions intermediary and/or advisory fee.
The M&A intermediary is entitled to a fee for services rendered to search, identify and originate business opportunities, to convert prospects into genuine deals, to cause a meeting of the minds and bridge gaps between the parties and to facilitate the closing of a deal, including arranging of and participation in meetings between the parties, qualification of and investigation of the viability or feasibility of the business opportunity and assisting in structuring the transaction, in identification, collection and distribution of due diligence data and in negotiations. Prior to closing, unless the parties agree to a retainer, the seller intermediary is generally not entitled to “fees” and thus the intermediary is at the risk of no remuneration subject entirely to whether or not a closing occurs.
The facilitation efforts by the intermediary are continuous and unbroken from deal initiation to closing. In essence, there is a direct and proximal link between the M&A intermediary’s activities and the consummation of the deal, whether it be merger, acquisition or divestiture, so that there is a continuing connection and intervention of the intermediary’s efforts-and the ultimate closing of the acquisition.
The typical M&A fee is typically calculated as percentage of the total enterprise value of the deal, calibrated at a level to compensate the intermediary for the value of their services and for assuming the risk of not getting paid.