(Newswire.net — July 6, 2021) –Mergers and acquisitions are a corporate strategy where two companies are merged into a single company to consolidate operations, eliminate competition, and for a host of other reasons. But the core outcome is a bigger presence with a possibility of more sales and revenue in the future.
That said, this merger and acquisition strategy is not easy. To leverage the benefits of this strategy, it’s important that two companies who offer complementary products or are present in the same industry must come together. Further, the management or owners of both companies must be aligned for this strategy to create a smooth and successful merger.
Since finding such like-minded companies is not easy, often there’s an intermediary who steps in to identify the right companies that can embark on this strategy. In turn, these intermediary companies or individuals create an M&A finders fee agreement and charge both the companies for their services.
What are the charges/fees?
The fees charged by the service that brings companies together vary according to the transaction value of the deal and the prevailing fee structure for that industry.
This fee was standardized by the Lehman brothers and is a commonly-used structure. Lehman’s fee calculation on the transaction value is as follows.
- 5% of 1st million
- 4% of the 2nd million
- 3% of the 3rd million
- 2% of the 4th million
- And 1% of the remaining
Now, you might wonder why you should pay such a fee to an intermediary company that is not a part of the merger and acquisition at all. Well, here are some reasons to pay an M&S finder’s fee.
Introducing two companies
It is very difficult to find two companies that want to enter into a merger and acquisition agreement simply because it could result in one or both companies losing their individual identity. It could also entail restructuring as both the companies have become a single entity with common management.
Further, this process itself can be long and drawn out.
Add to this mix is the legislators and company boards that must accept this merger because many governments would not prefer large companies to be merged together as this could give them an unfair share of the market.
Keeping all these considerations in mind, the finder has to bring together two companies to the deal table, and this is not easy. Also, it could entail the use of different resources for research and negotiation, and it’s only fair that the company is paid for its efforts.
Without such an intermediary, finding the right partners for merger and acquisition deals may not be easy.
Facilitating the deal
Some companies may also be involved in facilitating a deal that’s acceptable to both the companies and this could require a separate fee as well. It’s best to check with the intermediary on the role they play in the deal and the charges before you sign an agreement with them.
In all, the finder’s fee is more of an investment for better prospects for your company.