Mergers & Acquisitions Advisory

A Neumann & Associates, LLC

November 4, 2018

What To Pay An M & A Advisor

By Jeremy Albelda

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As expected, the issue of fees in M&A transactions is raised quite frequently by clients.  “Indeed, selling a business will result in different types of fees and taxes,” says Achim Neumann, President, A Neumann & Associates, LLC, a New Jersey based Mergers & Acquisitions advisory and Business Brokerage firm, “and at the end there are commonly three deductions.”

First, a seller typically pays an upfront fee for a valuation ofthe business. Short of a retainer scenario where the valuation is generated by the M&A advisor firm out of a retainer fee – somewhat a conflict of interest – a business owner will have usually a third party, accredited valuation firm establish a value for the company to be sold.

Upon closing, there is the cost of taxes to be paid by the business seller. This can be significant, depending on the type of transaction (Stock vs. Asset) and the type of company (LLC vs. Corporation). A qualified CPA can establish a tax estimate for the seller once a valuation has been put into place with an approximate deal size and structure. Early planning for a sale of a business will go a long way in reducing potential taxes.

Finally, there are the fees for the M & A Advisory / Business Brokerage firm. Essentially, there are two types of fees for M&A Advisory firms 

  • back-end fee (contingency fees due upon deal closing) 
  • retainer fees (upfront fees)

Generally speaking, back-end firms collect their fees at the closing table upon completion of a transaction. Accordingly, they typically cover the upfront expenses of preparing and selling a business – often amounting up to $40,000+ in the lower mid-market – and only work with rigorously written engagement agreements to ensure that fees are paid at the end and said upfront fees are recovered.  Accordingly, they are allowing for few changes to their engagement agreement with a business seller.

Alternatively, there are retainer M&A firms which typically capture a hefty upfront fee (very much like attorneys), typically, for a third of the commissions, payable over the initial engagement period. Needless to say, given that the significant upfront expenses of marketing the business are somewhat mitigated by the retainer, it allows for lesser stringent engagement agreements. However, such firms might not have the same ‘motivation’ to sell – given the fees were already captured.

“From our end, we are indifferent to what type of agreement a seller choses, but we know that most business owners prefer a non-retainer scenario, “ says Neumann, “at the end both parties need to be comfortable with the arrangement.”

About A Neumann & Associates, LLC

A Neumann & Associates, LLC is a professional mergers & acquisitions and business brokerage firm having assisted business owners and buyers in the business valuation and business transfer process through its affiliations for the past 30 years. With an A+ Better Business Bureau rating, the company has senior trusted professionals with a deep knowledge based in multiple field offices along the East Coast and has performed hundreds of business valuations in its history. The firm’s competitive transaction fees are based on successfully completing transactions. For more information, please contact A Neumann & Associates at 732-872-6777 or info@neumannassociates.com

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“Claus Madsen thoroughly helped us with selling our company. From the 1st introductory meeting explaining to us what was possible, to providing us with resources to assist with the sale. Claus was invaluable throughout the whole sales process. Claus was with us every step of the journey and always made himself available for any questions or issues that came up along the way. If you are interested in selling your business, I encourage you to reach out to Claus and the ANA team so that they can let you know what’s achievable. These guys will make it happen!”

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Andrew G., Investor

“We worked with Neumann & Associates to investigate the purchase of a research company in 2010 and found Achim to be capable, forthright and realistic. His depth of experience enabled us to fully understand our options, offering creative options that might enable the acquisition. While we didn’t acquire that particular company at that time, we know exactly who to call whenever we’re looking to buy or sell a business.”

Daniel Coates, Buyer

“Purchasing a business through this firm was a pleasure. Gary was very professional and transparent throughout the entire process. I look forward to working with A Neumann & Associates in the future.”

William Klemens, Buyer

“I utilized A. Neumann & Associates to assist in an M&A process. They are VERY thorough in using their time-tested process to calculate the value of investment opportunities, a process which provided a very detailed explanation for the value of the potential opportunity. Additionally, they also went above and beyond to extend other services including connecting with others who specialize in your industry and can assist with necessary steps including legal and accounting. Highly recommended!”

Edward Lane , Business Owner

“I recently contacted A. Neumann and Associates about getting a valuation of my business done. I spoke with Achim, who explained the process in detail. He had his colleague Gary come to my office in order to get a clear understanding of my business, and what I was hoping to accomplish. His patience in answering all my questions and his knowledge of the proper way to market my business gave me great confidence that this is the firm I will be using when the time comes for me to sell my business for max value. They gave me great insight into the steps I need to take now to get the best deal in the future. I highly recommend this firm to anybody who wants to sell now or down the road. They not only know their stuff, their actually just real nice guys.”

Robert Kardane, Business Owner
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