M&A Advisory Expectations – Fees, Timeline & Process

You’ve probably built a $5M business over the years, and you’re planning to expand your company or cash out to pursue other interests. In the M&A process, however, you may encounter numerous pitfalls that can negatively impact the outcome.

This is where an M&A advisory service comes in to guide you throughout the M&A process.

In this article, we shall highlight what you should expect from an M&A advisory. We also outline the factors that influence fee structures in the M&A industry and provide a timeline of the M&A process, allowing you to prepare accordingly.

Let’s get started.

TL;DR – M&A Advisory Expectations

Here are five things to expect from your M&A advisor:

1. Comprehensive support
2. Onboarding and preliminary analysis
3. Objectivity
4. Negotiation expertise
5. Confidentiality

Read on to understand how an M&A advisory will satisfy these expectations.

What Mergers and Acquisitions Advisors Actually Do?

Mergers and acquisitions advisors provide a range of services to guide businesses through the complex and time-consuming process of buying, selling, or merging with another company. 

An M&A advisor will help you through the following processes:

• Strategic Planning: They will help you outline your goals and draft a buyout or sellout strategy to ensure you achieve your objectives.
• Target Identification: An advisor will leverage their network to identify businesses ripe for a takeover or companies looking to expand through acquisitions. 
• Company Valuation: If you are selling, an advisor will accurately value your business to ensure you do not leave money on the table. Conversely, if you are buying, an advisor will ensure you don’t overpay for your target.
• Due Diligence: An advisor will review your legal, financial, and operational documents to ensure there are no liabilities that can jeopardize the deal or cause disruptions post-acquisition.
• Negotiations: An advisor will spearhead negotiations between your company and the target company, formulating the most efficient deal structure to achieve the best outcome. An example is deciding whether an all-cash, all-stock, or a mix of both works for you.
• Post-deal Integration: An advisor will help you create an integration strategy that prevents role duplication, aligns the cultures of the merging companies, and streamlines operations to ensure seamless integration.

Key Factors That Influence M&A Advisory Fees

Most traditional M&A advisory firms charge a success fee. This means you will pay a pre-specified percentage of the deal’s value to the firm upon closing. 

Typically, the percentage ranges from 5% to 12% for smaller deals and from 1% to 3% for larger deals.

On the buyer side, an M&A advisory firm can charge a monthly retainer fee plus a closing fee of 1% to 2% of the deal’s value at closing.

However, M&A firms are increasingly adopting flat-fee models because they provide clients with cost clarity, eliminating hidden conditions that can lead to unexpected and inflated payments.

Below are the primary factors that influence the cost and structure of M&A advisory fees:

1. Deal Size: An advisory firm will demand a larger percentage of your deal’s value if it is small and charge a smaller percentage for higher value deals. 
2. Deal Intricacies: The more complex an M&A deal, the higher the advisory fees. For example, cross-border M&As are more expensive because the advisory firm must navigate the regulatory hurdles of multiple federal, state, provincial, and local jurisdictions.
3. Services Required: You will pay more if you require your advisory firm to provide a complete package service comprising strategic planning, valuation, due diligence, negotiation, and integration planning. On the other hand, requiring a specific service, such as due diligence, will cost significantly less.
4. Timeline: If you want to close your M&A deal as quickly as possible, you will have to pay a premium price for your advisory firm to expedite the process. This is because it might require the firm’s employees to work substantial overtime hours.
5. Market Forces: Stiff competition between M&A advisory firms can help you negotiate favorable fees, while a less competitive market can allow firms to drive up costs.
6. Firm Reputation: A more reputable, experienced M&A firm can leverage its successful track record of closing M&A deals to charge clients above the industry standard.
7. Your Sector: The industry your business is in can influence the fees an M&A advisory charges. This is because some industries, such as the healthcare sector, often have stricter regulatory controls that contribute to deal complexity.

M&A Advisory Process Timeline

The M&A advisory process often varies in complexity and duration depending on the entities involved. 

However, all processes follow the pre-determined phases outlined below:

Phase	Scope	Timeline
Preparation and Planning	– Assembling your M&A team – Outline your goals – Designing a strategy – Cleaning up financial statements – Preparing a Confidential Information – Memorandum (CIM) – Identifying potential buyers or sellers	4-12 weeks
Marketing	– Reach out to your preferred targets – Require those interested to sign Non– Disclosure Agreements (NDAs) – Distribute CIMs to those who sign your NDAs	3-8 weeks
Receiving Initial Offers and Selection	– Receive Letters of Intent (LOI) from interested parties or – Choose your preferred company – Sign an exclusivity agreement with your preferred company to begin information sharing	2-4 weeks
Due Diligence and Negotiations	– Review of your corporate records, financial statements, legal and tax compliance, operations, and IT systems and data security – Negotiating key terms and drafting a purchase agreement	6-12 weeks
Final Agreement	– Obtaining required regulatory approvals – Finalizing and signing contracts	2-8 weeks
Deal Closure	– Transfer of funds to the seller – Creating a transition team, including top management officials	1-6 weeks
Post-transaction Integration	– Aligning organizational cultures – Streamlining responsibilities to avoid role duplication – Retaining top talent – Harmonizing salaries and employee benefits – Streamlining operations to extract value	6-18 months

Here’s the thing: this process usually varies depending on the parties involved or the conditions of the M&A. 

The right strategy would be to engage an M&A advisory firm to assess your exit readiness and discover the best way to prepare for exit, so you get the most value from the transaction. 

At JS CPA Strategic Solutions, we leverage our years of M&A experience to help you optimize your business’s value, negotiate the best deal, and prepare for exit. We also leverage our fractional CFO expertise to optimize your EBITDA and prepare your business for mergers and acquisitions (M&A).

Talk to our M&A specialist today and maximize your company’s value before exit.

Tips for Choosing the Right M&A Advisory Partner

When you’re selecting your M&A advisory partner, your opinions and preferences are a top priority throughout the deal structuring process.

Below are some tips to consider to help you make the appropriate decision:

• Company Culture: Evaluate the advisory partner’s organizational culture to determine whether they embody ideals that you value. A compatible cultural fit will ensure a smoother working relationship that is open to incorporating innovative ideas into the transaction process.
• Industry Expertise: Choose an advisory firm with extensive experience in structuring M&As in your sector. This ensures they are aware of the pitfalls you may encounter during the process and how to avoid them. It also ensures they understand your industry’s business valuation process.
• Experience: Pick an advisory firm with a track record of closing M&A deals that are relevant to your pursuits. They can leverage their expertise to provide deep insights into the M&A process, ensuring your deal is a success.
• Scope of Services: Find an advisory partner that can comfortably satisfy all your needs. This ensures you do not have to hire multiple firms to offer advice on different stages of the M&A deal, which can be expensive.
• Communication: Your M&A advisory partner should be an excellent communicator who keeps you apprised throughout the process. They should also be straightforward about their capabilities and provide realistic timelines for deliverables.
• Pricing: Compare the fees and fee structures of different advisory firms to find one that is within your budget and that can extract the most value from your M&A deal.

What to Expect From M&A Advisory Services

Before you engage the services of an M&A advisor, here is a detailed breakdown of what to expect:

1. Comprehensive Support

Expect your M&A advisor to provide crucial support throughout your merger, acquisition, or divestiture process. That includes strategic planning to provide you with a roadmap that will guarantee you will achieve your goals.

You will also receive help in identifying targets for your expansion plans, accurately valuing your company, and conducting due diligence to ensure the deal is above board. The support will also continue past deal closing and include post-deal integration support.

2. Onboarding and Preliminary Analysis

Expect your M&A advisory to conduct a thorough onboarding process to establish the facts of the deal. That involves conducting a preliminary analysis of your financial statement, regulatory compliance, employee relations, intellectual property, and contracts.

The objective of the analysis is to identify dealbreakers, factors driving valuation, and information gaps that need to be addressed before reaching out to targets.

3. Objectivity

As a business owner, you have a significant vested interest in ensuring the success of your merger or acquisition. Unfortunately, this passionate pursuit of success can lead to emotional decision-making that derails the M&A process.

An M&A advisor will provide independent, level-headed, and data-driven insights throughout the process to ensure every decision you make is from a position of strength.

4. Negotiation Expertise

An M&A advisor will act as an intermediary between you and the buyer or seller, helping maintain a professional environment despite any tensions that may arise during negotiations. 

Expect them to use their expertise to negotiate key terms, including the purchase price, warranties, indemnifications, employment agreements, and transition support. 

Expect your M&A advisor to know when to retreat and compromise strategically, and when to push on to ensure you receive the best possible outcome.

5. Confidentiality

Expect your M&A advisor to implement protocols that guarantee the safety of sensitive information throughout the process. This includes drafting CIMs to ensure your company’s financial position remains confidential and does not become public knowledge. 

They will also require participants to sign NDAs and exclusivity agreements to keep your deal details private. Your advisor will also spearhead the setup of a virtual data room to securely store sensitive documents online, rather than using physical data rooms.

Best Practices for Managing M&A Advisory Relationships

A good relationship with your M&A advisor is crucial to the success of your M&A deal.

Check out some actions you can put into practice to improve your relationship with your M&A firm:

• Define your Selection Criteria: A good M&A advisory relationship begins with choosing the right partner. Therefore, you should have a checklist of non-negotiables that your advisory firm must meet.
• Evaluate Cultural Fit: Ensure the advisory firm’s working style aligns with your company’s to guarantee close collaboration during the M&A process.
• Outline Objectives and Expectations: From the outset, define your goals for the M&A deal and collaborate with the advisory firm to establish realistic expectations, thereby preventing disagreements and future disappointments.
• Communicate Regularly: Frequent and transparent communication between you and your advisors is crucial to a deal’s success. It allows you to voice your concerns, receive regular updates, and resolve matters that may cause delays.
• Define Pay Structures: Before you begin working together, ensure you understand your M&A firm’s fee model, as this can be a source of tension. It also prevents any costly surprises post-transaction that can influence your opinion of the firm.
• Share All Documents: Due diligence is a crucial step in the M&A process. Therefore, it is essential to share all documents pertinent to the deal. Withholding vital records can create an inaccurate picture of your company and deter potential buyers or sellers.

Frequently Asked Questions (FAQs)

Below are answers to common questions we receive from our clients:

What are the Common Mistakes in M&A Advisory Engagements?

Common mistakes in M&A advisory engagements often relate to insufficient preparation. For example:

• Poor due diligence can miss liabilities that reduce the deal’s value.
• A lack of post-merger planning can result in integration challenges.

Can a Business Owner Handle M&A Without an Advisor?

Yes, a business owner can handle M&A without an advisor; however, it is not recommended. 

As an owner, you may not have the experience and expertise to conduct accurate due diligence and valuation, or to navigate regulatory hurdles.

How Long Does the M&A Advisory Process Take?

The M&A advisory process takes several months to a year. The duration depends on the complexity of your deal and the scope of services required. 

Smaller deals can be completed in 6 months or less, while larger deals typically take significantly longer. 

Are M&A Advisory Fees Negotiable?

Yes. M&A advisory fees are negotiable. You can negotiate the fee structure. 

For example, flat rate vs. percentage-based, and the fee amount to reach an agreement that is acceptable to you and your advisory firm.

What is the M&A Due Diligence Checklist?

The M&A due diligence checklist is a comprehensive list of all items and information that your advisor needs to conduct thorough due diligence.

It includes:

• Intellectual property, including your patents and trademarks.
• Corporate documents, such as shareholder agreements and executive meeting minutes
• Tax records
• Financial statements

Conclusion

When you’re navigating mergers and acquisitions, you require strategic expertise to protect your interests while maximizing the value of the deal. 

The right M&A advisor will help you create an end-to-end plan for your deal, including handling negotiations and upholding confidentiality, all while mitigating risks. 

At JS CPA Strategic Solutions, we offer buy-side and sell-side advisory, due diligence, risk management, and deal structuring services, so you don’t leave any money on the table. We use our fractional CFO experience to clean your financial reports, optimize your financial performance, and structure your M&A deal to maximize LCGE benefits.

Book a personalized strategy meeting today and plan your exit strategy.