What Costs Should You Prepare For Before Selling Your Business?


Selling your business isn’t a process that should be taken lightly; there should be consideration toward various aspects before you move forward with a deal. Before you decide on selling, be sure to understand the costs that will be accrued throughout the transaction and whether or not you are financially prepared for them. Below are a few of the fees you will encounter during your M&A deal and what they can mean for the success of it.

Firmex and Divestopedia have recently released their M&A Fee Guide for 2018-2019 that goes into detail about the various fees encountered during M&As through the participation of advisors in the field.

Paying Off Company Debt

           A qualified buyer is not going to want to invest their time and money to acquire a company that already has its own debt. Unless already agree upon, the buyer will not take on your debt and so you will have to pay it off yourself. This can drastically affect the price of the deal depending on the amount of debt you have; it will be taken off the total amount you are selling your company for and can bring it down significantly if you have a large amount of long-term debt. Keep that in mind prior to looking for a buyer as you may not be receiving as much as you expect for your business later on down the line.

Success Fees

           Your costs don’t necessarily end when the deal is closed. Success fee structures are implemented for when a deal is successfully closed, to be paid to your investment bank. A percentage of your company’s enterprise value is based on the completion of the deal and should be prepared for prior to the initiation of it. However, the business owner is not the only affected party in the success fee structure—the investment banker risks not getting paid if a deal isn’t completed. This fee is meant to put the investment banker and the business owner on the same page and align their interests as they progress into the transaction.

Break Fee

           Alternatively, a break fee is paid to an acquirer if a contract is not completed or if a company terminates the M&A prior to its expiry. An M&A deal takes a lot of time and effort, and so, a buyer wants to be sure that they are not wasting theirs if you decide to end a deal before the contracted time period. It is very optimistic to believe that there will be a clean break if you change your mind during an M&A; a break fee is there to remind you to be sure of your decision before embarking on the arduous process.           

Your Team’s Fees

           An M&A Data Room deal cannot be completed all on your own; you need to cultivate the right team in order to assist you through the process and ensure that all your bases are covered in the case of any unforeseen issues or circumstances. With a skilled team comes additional costs and fees that you should be prepared for before you decide to sell your business.

Lawyers: Lawyers are there to keep you and your business safe throughout the M&A and can charge you a hefty amount to do that. However, without them you can risk running into murky waters when signing contracts for the stipulations of your deal.

M&A Advisors: Your advisor is there to guide you through the M&A process. They can also help source potential buyers for your business and decipher which ones are best suited to your company’s market. M&A Advisor (Investment Banker) fees can vary, but you should expect to pay around 3-10% of your transactions overall value.

Accounting Firms: Much like the above professionals to have on your team, an accountant is there to help you through the M&A with as much knowledge and success as possible. They will help you keep your finances in order and any other aspects of the process in check as you progress through the deal. Their fees are typically in the same range as lawyers.