An M&A broker's fee has four components and sellers usually negotiate the wrong one. The headline rate gets the attention; the minimum fee and the tail clause decide the money and the risk, and both are more movable than the rate a firm quotes first.
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Typical M&A fees: a retainer and a success fee
A retainer, monthly or at milestones, funds the preparation before buyers see anything, and may or may not be credited against the success fee. The success fee is normally a declining scale applied per tranche of price, which means the effective rate on a larger sale is well below the headline. Ask for a worked example at three prices.
M&A fees by deal size: the minimum, which usually governs
Below a certain price the minimum fee, not the scale, decides what you pay. On a business at the smaller end this can be several times the headline rate expressed as a percentage. It is also the term firms most often move when they want the mandate, which makes it the right thing to negotiate.
The tail, which decides the risk
A period after the engagement ends during which a sale to certain buyers still triggers the fee. Limited to buyers actually introduced and listed in writing at termination, it is fair. Covering any buyer for two years, it is a trap that can leave a seller paying two firms for one sale.
Questions people ask about M&A broker fees
Are M&A broker fees negotiable?
The minimum and the tail usually, the scale sometimes, the retainer rarely because it maps to real work.
Is the fee charged on debt the buyer assumes?
That depends on how consideration is defined in the engagement letter. A fee on enterprise value and one on equity value are different numbers, so pin it down.
What should the success fee agreement say about money paid to me later?
Ask that any fee on an earnout or seller note be payable only when and if you are actually paid. Firms frequently agree.