How high are the costs for Company sale or an M&A project? This is a question asked by many family entrepreneurs who are about to sell their business. The following comparison first presents the individual remuneration models and their advantages and disadvantages. In summary, we take a look at the level of costs an entrepreneur has to reckon with.
In the market of M&A consulting there are basically three models:
- Fee on a contingency basis
- Monthly fees + success commission
- Consultancy fee + success commission
Costs for M&A advisors on a pure success basis
There are M&A advisors or Business brokerwho offer their services purely on a contingency basis. With this type of succession support, the attempt at a quick conclusion in the foreground. The individual particularities of a company, a solid analysis and the preparation of comprehensive sales documents (such as e.g. Information Memorandum) usually receive insufficient attention. If a Company sale However, if the project is too long or the support becomes demanding, many M&A advisors lose interest and move on to the next project. The M&A project is then usually over for the time being.
The costs of a company sale are then zero. A revival of the project can then often only be expected after some time. Especially in manageable sectors, a new start is unlikely to have a positive effect on the achievable sales price.
Watch out for unclear mandate relationships
Caution is advised if the remuneration model deviates from the buyer principle and thus suggests a conflict of interest: In this case, a transaction advisor is only supposedly mandated by the seller. However, the success commission and other costs of a business succession are to be paid by the buyer. This is often a clear indication that the client relationship is unclear. A serious M&A advisor represents his client and is also remunerated by him according to his performance.
Hans-Reinhart Grünbaum, a lawyer with the IHK Frankfurt in an interview with the successor club Saxony-Anhalt: ‘Serious consultants I know only exceptionally accept the wish to be paid exclusively on the basis of success. A well-founded service is associated with a workload that should not be underestimated. The success of the mediation, on the other hand, depends only partly on the transaction advisor?
For this reason, it has proven useful to Company sale consulting and mediation should be considered and remunerated separately. In practice, the following two models have become established.
Monthly fees + success commission
Especially with very large Corporate transactions remuneration on the basis of monthly flat rates (so-called “retainers”) with a subsequent success commission has become established. This gives clients a certain degree of predictability.
In family-run SMEs, however, this approach often leads to a typical Advice trap in business succession. The fees resulting from such a service contract with a term of up to two years quickly increase the costs of a company sale or the M&A advisor costs to several tens of thousands of euros. A concrete service description and project plan are usually missing. Concretely measurable results are also often lacking.
There reputable consultants do not earn their money via high monthly lump sums, it is worth taking a look at the following model:
M&A advisory fee + success fee
A clearly defined offer with a service description makes the costs of a company sale or an M&A project clear in advance. A written service description contains fixed prices for a business valuation with Enterprise value calculation or a meaningful Company Exposé and time-dependent components for negotiation facilitation. A project plan records the essential milestones of the project as deadlines. Each service rendered thus becomes traceable. The commission due in the event of success usually fairly offsets significant parts of the upfront costs.
In rare cases, service packages are invoiced at a flat rate if predefined targets are achieved. This is, for example, the completion of the exposé or the signing of a contract. Letter of Intent.
What are the specific costs of selling a company?
Due to the complexity of a sales project, the exact amount of costs for a business succession or an M&A project cannot be reliably predicted in advance. Typical consulting costs include, for example, the following services:
- Preparation of a company exposé and a Business valuation;
- Search for company successors with examination of backgrounds and intentions
- Targeted approach of matched prospective buyers
- Negotiation support;
- Due Diligence (DD): Detailed examination of the strengths and weaknesses of the enterprise. In smaller companies, this is often done “manually” by inspecting files and contracts. For larger transactions, an online version in digital form is becoming increasingly popular. The time required for the buyer to prepare and carry out such a review should not be underestimated. Experienced transaction advisors help here to Due diligence process structure and to keep the effort associated with such an audit as low as possible.
- Costs for tax consultants (tax optimisation) and lawyers to assist with all tax and legal issues, preparation of an LOI (letter of intent) and a Company purchase agreement;
- Notary fees (usually paid by the buyer);
- Success commission.
“Looking back on the large number of projects KERN has completed, we can say that the average cost of a company sale or an M&A project is regularly between 5 and 10% of the transaction amount move,” says Ingo Clauswho accompanies entrepreneurs in the sale of a company in Osnabrück and Münsterland. This usually includes the costs of all consultants, specialists and service providers involved in the transaction.
A well-organised company sale is an investment
Claus points out some essential points in the consultancy contract: “A company owner should therefore not only pay attention to the investment for the complex consultancy but always also to the term of a consultancy contract. As a rule, reputable consultants do not agree to any time commitment periods at all, but use trust as the yardstick for a cooperation. If consultants demand a time commitment, caution is advised!”
Because should the trust be lost at any point in the M&A process suffer, a separation must be possible at any time as an option for the client. Without any deadlines.
In summary, it can be said that a good Succession advice Money costs. Against the background of the increasing Lack of entrepreneurs bad or even missing advice can cost a fortune!
Tips for further reading:
How do you find a reputable advisor for your business succession?
Interview: Preparing the succession within the family well
DIHK: Challenges for company successions are growing
Comment: Unresolved company successions endanger our prosperity
Clarify important questions about business succession in advance
Company successions in East Westphalia and Bielefeld are on the rise
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