For entrepreneurs and middle market business owners, the sale of your business is likely the only time you will ever go through the M&A process. To ensure success, enlisting the help of a trusted expert is a crucial step in securing the best deal possible.
Once you have selected an intermediary , they will undoubtedly ask you to sign a contract governing your relationship with them. While there are many forms of these contracts, all will address a number of common issues.
Duration/Exclusivity of Relationship
12-month exclusive arrangements are fairly common. Most of an intermediary’s compensation will be earned through a successful transaction, so the intermediary will want a significant chance to ensure that they reach success. If you want a shorter or non-exclusive engagement don’t be surprised if you are asked to pay a retainer fee.
As described above, intermediary fees are usually some combination of retainers and success fees depending on the firm’s business model and risk/reward tolerance. Larger reliance on success fees usually means that the intermediary is more aligned with your goals, as they will be successful when you are successful. Larger retainers potentially skew this alignment of interests.
While limited in duration, intermediary contracts typically contain a tail period that covers transactions with buyers introduced during the term of the agreement but occurring after the expiration of the contract. These are very typical and appropriate, but be careful to understand what they cover.
Overall, because the intermediary is selling their time and won’t be paid the majority of their expected compensation unless the transaction is complete, the most sensitive issues to the intermediary will be the balancing of risk and reward.