Simply put, the cost of an acquisition is mainly in hiring advisers. Of course, the price of the business to be acquired must be settled, but this is what we call the acquisition price. In this article, we will discuss the cost of achieving a business acquisition.
Buying a business is not something you "just do" yourself. Advisers are essential to the success of the purchase. Choose the right advisers and make sure that the costs are kept under control, because they add up quickly. You can easily spend tens of thousands of euros. Even more than a ton in advisory fees is no exception.
Cost of advisers.
Good advisers don't come cheap. For an accountant, business valuator, tax consultant or lawyer you can easily pay 100 to 250 euros per hour, with peaks of 500 euros per hour at the top of the market. Make sure you keep the costs under control. Ask for a clear quote in advance. Do not agree to after-the-fact billing, because you are at the mercy of the gods and, if you are unlucky, every phone call will be billed.
Fixed fee
Advisers use different pricing models.
Some work strictly on an hourly basis, others on a fixed fee basis. The latter provides more leverage, but can also cause the adviser to lose motivation when he starts to significantly exceed his hours (which he keeps track of in his head, of course).
Some parties work on a no cure, no pay basis. Take a close look at the criteria for what a "cure" means in this case and what costs are involved.
Variable fee
A category apart are merger and acquisition consultants. Some charge an hourly rate for all their work, ranging from $100 to $250 per hour. Anderen additionally charge a success fee on the transaction value of about 1 to 5%, which may or may not be tiered and may or may not be combined with an hourly rate.
A bit tricky is the success fee, though. If an adviser is acting for a seller, both parties benefit from a high sales price and it is realistic for the adviser to get a share of the proceeds. If the adviser is acting for a buyer, that shared interest is not there. The buyer wants the lowest possible purchase price, while the adviser benefits from the highest possible price because his fee will be higher.
It is better to charge the adviser on the negotiation result, for example, receiving 10% of the difference between the asking price and the final purchase price. An additional disadvantage of a success fee is that it can lead to push behavior from the adviser, especially if he has been working with you for a long time. Don't be pushed, put your own interests first.
Also make sure that the term "transaction value" is well defined in the agreement with the M&A advisor so that no conflict arises over it. If the seller still pays a substantial dividend just before the sale, the purchase price drops. Does that dividend fall under the transaction value or not?
Total cost
The total cost of outside advisers can add up quickly. For example, a business valuation by a Registered Valuator typically costs between €7,500 and €15,000. A 2% success fee on one and a half million euros is as much as 30,000 euros.
It is no exception that a buyer spends tens of thousands of euros on advisory fees at the end of the ride. So make good arrangements with your advisers, be on top of it and prevent the costs from getting out of hand.
But remember, there is a price tag on quality. The investment in a quality adviser always pays off in the long run. Cheap is often expensive in this case, too.
Tax deductible
One advantage is that consulting fees are largely tax deductible and can, in principle, be included in financing the purchase.
