Appropriate Finder's Fee for Private Wealth Management Advisors in MA Transactions
When a private wealth management advisor assists a client with selling their business, determining the appropriate finder's fee can be a complex task. This article focuses on guiding these advisors on how to determine a fair fee in Middle Market Acquisition (MA) sell-side transactions with deal values ranging from $80 million to $150 million.
1. Understanding the MA Landscape
MA transactions are crucial in the business world, where the sale of companies often requires the expertise of professionals to navigate the complexities of the process. Private wealth management advisors play a vital role by identifying potential buyers and facilitating the connection between the seller and the investor.
2. The Role of the Finder's Fee in MA Transactions
A finder's fee is a common practice where the advisor receives a portion of the fees earned by the selling side MA advisor or a commission from the buyer. This fee compensates the advisor for their efforts in identifying and introducing potential buyers, which significantly contributes to the closing of a deal.
3. Determining the Finder's Fee for Sale-Side MA Advisors
When referring a client to a sell-side MA advisor, the finder's fee is typically a percentage of what the MA advisor makes on the deal. For transactions in the $80 million to $150 million range, a finder's fee of 10% of the MA advisor's fees is generally considered reasonable. Assuming an MA advisor charges around $1 million in fees, the finder would receive $100,000.
4. Referring to an Acquirer Directly: The Higher Finder's Fee Range
Another option is to refer the deal directly to an acquirer. In this case, the finder's fee can be much higher, potentially ranging from 0.5% to 1% of the enterprise value. However, this approach requires more extensive networking and relationships with industry Corporate Development teams or Private Equity investors who are likely to pursue the deal. This is because directly approaching an acquirer bypasses the usual intermediary process, making the deal more challenging to close.
5. Key Considerations for Choosing the Finder's Fee Structure
The choice between a 10% fee to a sell-side MA advisor or a higher percentage of the enterprise value to an acquirer depends on several factors:
Success Rate: The likelihood of a deal closing is higher with a sell-side MA advisor due to their established relationships and professional reputation. Directly referring to an acquirer may have a lower success rate due to the acquirer’s internal decision-making process and competition. Client Relationship: The nature of the relationship with the client can influence the fee. If the client trusts the advisor to handle the transaction, a higher percentage may be justified. Conversely, if the client prefers a hands-off approach, a lower fee may be more appropriate. Market Conditions: Market conditions such as industry trends, economic factors, and deal competition can impact the success of the deal and consequently the finder's fee.6. Conclusion
Private wealth management advisors play a crucial role in MA transactions, and the finder's fee is a significant part of their compensation. For deals in the $80 million to $150 million range, referring to a sell-side MA advisor with a 10% fee is a common and reasonable approach. For those willing to navigate the complexities directly with an acquirer, a higher finder's fee of up to 1% of the enterprise value is an option, but requires a strong network and impeccable relationship management.