The costs of a business acquisition are primarily associated with hiring advisers, not with the purchase price itself (the price of the business). Expect to pay 100 to 250 euros per hour for an accountant, business valuator, tax specialist, or lawyer, with some fees reaching up to 500 euros. M&A advisors often also charge a success fee of 1 to 5 percent of the transaction value. In total, as a buyer, you can easily spend tens of thousands of euros on advisory fees—and sometimes even more than 100,000 euros.
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 isn’t something you can just “quickly” do on your own. Advisers are essential to the success of the purchase. Be sure to choose the right advisers and keep costs under control, because they can add up quickly. You can easily end up spending tens of thousands of euros. Even advisory fees exceeding 100,000 euros are not uncommon.
How much do advisers cost during a business acquisition?
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 firms operate on a “no cure, no pay” basis. Be sure to carefully review the criteria for what constitutes a “cure” in this context and what costs are associated with it.
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.
The success fee is a bit tricky, though. If an adviser represents a seller, both parties benefit from a high sale price, and it’s reasonable for the adviser to receive a portion of the proceeds. If the adviser represents a buyer, however, that shared interest does not exist. The buyer wants the purchase price to be as low as possible, while the adviser actually benefits from the highest possible price, because that results in a higher fee.
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 clearly defined in the agreement with the M&A advisor to avoid any disputes. If the seller pays out a substantial dividend just before the sale, the purchase price will decrease. Does that dividend count toward the transaction value or not?
What are the total costs of a business acquisition?
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’s not uncommon for a buyer to end up spending tens of thousands of euros on consulting fees. So make clear agreements with your advisers, stay on top of things, and prevent 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.
Are consulting fees tax-deductible?
One advantage is that consulting fees are largely tax deductible and can, in principle, be included in financing the purchase.
Frequently Asked Questions
How much does it cost to hire advisers for a business acquisition?
Expect to pay 100 to 250 euros per hour for an accountant, business valuator, tax specialist, or lawyer, with rates reaching up to 500 euros per hour at the high end of the market.
How much does a merger and acquisition advisor cost?
Often an hourly rate of 100 to 250 euros, possibly supplemented by a success fee of 1 to 5 percent of the transaction value, which may or may not be tiered.
How much does a business valuation by a Certified Valuator cost?
Typically between 7,500 and 15,000 euros.
Are consulting fees associated with a business acquisition tax-deductible?
Yes, consulting fees are largely tax-deductible and can, in principle, be included in the financing of the purchase.
Why isn’t a success fee based on the transaction value always in the buyer’s best interest?
This is because the adviser has a vested interest in achieving the highest possible price, while the buyer wants the lowest possible price. Billing based on the outcome of the negotiations better aligns with the buyer’s interests.
