Corporate Finance Fees and Quality of Service | Round Table Discussion

Neil Ackroyd

Right. OK and moving on to our second question having discussed what makes a good corporate finance advisor, I think a lot of people are watching this are wanting to know how much a corporate finance advisor should be paid and what a reasonable market fee is because none of the people, in my professional opinion, are willing to say that on their website so why do we not try and answer that for them. Obviously that varies on size of transaction and whether it is a buy side or a sell side of the transaction. But why don’t I throw that open to you Chris first.

Chris Hale

Well it depends on what sort of size of deal you are talking about. If you are looking at deal with an enterprise value of more than £100m, you would expect the Corporate Finance advisor to be charging a 1% fee if they are on the sales side and perhaps racketing up to encourage a higher price to a number larger than that above say £120m if the target was say £110m they might be getting another 0.5% and then ratchet up even higher than that once you get into the really deal glory territory.
Once you are below £100m the percentages become much more variable. The smaller the deal the less relevant the percentage is. It’s the absolute number that you need to be looking at. So if you are dealing with a deal below £10m the percentage fee might be 5% but what you actually want to look at is the £ number and whether that’s what you think is good value for what you are buying from the advisory firm that you are appointing.

Neil Ackroyd

So Chris – what would you say to that?

Chris Williams

I would agree with Chris’s assessment of the market rates. I would certainly encourage everyone to hire the best you can. You are trying to maximise price, reduce the overall cost and trauma of the transaction and most transactions do involve a great deal of stress and heartache. Hire the best you can and hire the person who is right for the transaction, the one with the most experience, the one that you are closest to, the one who understands the most and who understands you and if the difference is a small percentage or a small number then think of that not as a cost but think of the benefit that comes from having the right advisor on board.

Chris Hale

To an extent, you get what you pay for, to an extent but there is an element of truth in that.

Neil Ackroyd

Yes. It is not just the benefit of getting the right advisor but it is also the determent of getting the wrong advisor. Bob what is your view on those numbers?

Bob McNaughton

I don’t think that I have ever chosen an advisor for their fees. I have chosen them for their capability to do the job. What I would add on fees is I definitely agree they should be incentivised to maximise performance. Getting the point of ratchet right is probably the critical thing so that you know that your advisor is going to be working hard to get over a certain point and not benefiting from a ratchet when they don’t necessarily have to work hard to achieve to that.

Neil Ackroyd

So we are getting quite a strong message, don’t effectively use fees as your criteria for selecting a corporate finance advisor from some fairly experienced guys. There are a couple of points of interest. Clearly Chris you are a very experience Private Equity specialist but what is your view as a specialist on appointing advisors?

Chris Williams

I think most private equity houses do appoint advisors for both buy side and sell side but not all. I would recommend that all private vendors should appoint advisors. Almost my worst nightmare was being introduced to an interesting business, an interesting opportunity where I heard that the vendor was appointing his long-term accountant and his lawyer who was a friend from school. There you saw somebody where you just knew that the process was going to be awful and not good for anybody involved. So yes, Private Equity does use advisors and I do use advisors, I have a lot of private equity and transaction experience but still having somebody to sit between me and process, if that makes sense, as an intermediary, because if you are looking at selling to your management team or if you are looking at selling to a competitor having some space between you and that discussion with those people can often be very valuable to the negotiations especially in the last period of time when you are getting towards the end of the sales process.

Neil Ackroyd

So even people who are vastly experience on transactions still see the benefits of lead advisory.
So we are going to move onto our second question which is a very similar question but really with corporate lawyers what should be expect in terms of service and role from Corporate Lawyers?

Bob McNaughton

Well I think that there are a lot of similarities, when it comes down to experience and capability rather than qualifications. I think that it is about a personal relationship, I have worked with Chris over many years because it has always been a successful relationship and why did I choose him in the first place, because he was able to demonstrate that he had experience in the areas that I was interested in, he demonstrated that and it became a successful long term relationship.

Neil Ackroyd

Right. And Chris?

Chris Williams

I think that that personal relationship is even more important or the closeness of the relationship with your lawyer is even more important that that with a lead advisor. Sometimes with a lead advisor I might appoint because they have sector knowledge or they know the potential buy universe. With lawyers, and I have also worked with Chris over the last 20yrs, I want somebody who understands me, who understands what is important to me and can help us deliver that efficiently and effectively. Again, I think the lawyers are the cutting edge of the transaction in terms of the depth of the transaction when you are staying up all night in the middle of tough negotiations when you are staying up all night in the middle of tough negotiations being able to help you judge what is really important and what isn’t so important to you and really helping you through that process. I always turn to my lawyer.

Neil Ackroyd

I guess in my experience as well, the lawyers do get into a much much greater level of detail on the SPA negotiations for example than the corporate finance advisor just by necessity , they are lawyers, they are drafting that documents and they are negotiating every bit of it.

Chris Hale

I think as a deal progresses the lawyers role becomes more and more important as you get to the execution phase, as the early stages the lead corporate finance advisor is the most important of the advisors choosing the tactics for selling the business, the community of potential purchasers that you are going to go out to, selling the business to them once you have got to that phase but once you have got 2 or 3 purchasers on the hook and particularly once you have got one of the hook, you are then into the documentary phase of it in an intense way and the importance of a lawyer will becomes paramount. That is when Corporate Finance advisor can get in the way!

Neil Ackroyd

Not good corporate finance advisors!!

Chris Hale

Not good ones – absolutely!!