Buy Side Fee Agreement

Another risk is the likelihood that the consultant will drill a dry hole where prices cannot be reached, the seller does not really want to make a deal and wastes a lot of time, costs and resources. Target companies could be technically „not for sale,“ i.e. not being prepared for a sale process and the contractual period is extended while the seller keeps equipment available. If a business is „on the market“ or „for sale,“ sellers may have prepared appropriate sales equipment and be prepared to make a transaction, which significantly shortens the transaction time. The agreement may not be concluded after months of work. Often, buy-side chords are closed just before the goal line. Many factors that influence buyers and sellers are outside the control of AM consultants and pose considerable challenges and manage risks: on the one hand, a customer sold on the sales side, a real seller, will usually sell to someone. He cannot take the company with him. During a sale process, it is likely that at least one potential buyer will make an offer that can be accepted happily or otherwise.

On the other hand, as a buy-side customer, a potential buyer, does not need to buy at all. Never! A somewhat asymmetrical risk for the consultant, which naturally influences the costs of the M-A and their structure! As mentioned above, the chances of success are much more frightening on the buy side than on the sales side, and the costs of the M-A-Buy-Side are therefore structured accordingly. The fee includes a conservation that covers some basic costs, but not all the costs of success, plus a success fee when entering into an agreement. To manage risk, especially time, retention is usually a monthly amount as opposed to a fixed lump sum. The longer the acquisition process, the greater the risk of significant losses to the advisor, especially if he does not close a deal! Consultants know that when they do their homework, they work with clients to identify potential buyers, it is likely that someone in the pool of potential buyers will make an offer. In addition, if a good process is underway, the seller will have the luxury of choosing between several competing bidders. At the buy-side party, all efforts are usually focused on a life seller (one after another anyway). The buyer will most likely move away from the business if a competitive sales process pushes the value of sellers above a reasonable investment value. And of course, they should leave! Buy-side representation is likely to be more risky for consultants and, as such, the fees of the buy-side will generally reflect the uncertainty, risks and long-term nature of a buy-side commitment.