NORTH AMERICAN EDITION

Key insights on
M&A advisory
fees in the
middle market.

Partnered with:
M&A FEE GUIDE 2022-2023 PARTNERED WITH AXIAL & DIVESTOPEDIA 1
Contents
This Year’s Highlights 3
Overview 4
Methodology 5
Contributors 6
Overall Revenue and Fee Levels 7
Engagement Fees 10
Success Fees 13
Additional Terms 17
Profitability and Pressure to Cut Fees 21
Outlook & Conclusions 23
Appendix: Respondent Demographics 26
About Axial 29
About Divestopedia 29
About Firmex 30
M&A FEE GUIDE 2022-2023
This Year’s Highlights
1. Most firms said they kept their M&A fee levels the same in
2022 as in 2021 for deals of similar size and complexity.

2. More than half of the advisors said their revenue from M&A
fees would be higher in 2022 than in 2021.

3. 
Most firms said they were about as profitable in 2022 as in
2021. Of the rest, more said profitability increased than said it
declined.

4. 
The number of firms that don’t charge a retainer or work fee in
addition to a success fee increased to 19%.

5. Three-quarters of firms said there was no change in the

pressure to cut fees in 2022. Only 12% of firms said the
pressure increased.

For our sixth annual M&A Fee Guide, we have

partnered with Divestopedia and Axial to produce
a comprehensive source on transaction fees in
the middle market. With a record of over 500 M&A
professionals who contributed to this year’s data,
business owners and M&A practitioners alike can
expect a clear and accurate picture of what it has
looked like to be on either side of a deal this year.
Additionally, commentary from our partners lends
expert perspective that helps us interpret the
numbers and trends. We are confident this will be
a useful and relevant resource as we enter the
year and markets ahead.
—Mark Wright, General Manager, Firmex

M&A FEE GUIDE 2022-2023 PARTNERED WITH AXIAL & DIVESTOPEDIA 3

Overview
IF THERE’S ONE THING we’ve learned conducting surveys over the last
seven years, it’s that middle market merger advisors are a very plucky
crew. They are optimistic by nature, and they find ways to thrive in any
environment.
The last year certainly was not ideal for dealmaking. Interest rates rose
sharply. There is a ground war in Europe with substantial disruption to the
energy market. Public equity markets have fallen, and the prospect of a
recession looms.
In our quarterly survey of deal volume, middle market advisors say their
overall volume has flattened out but is not declining. That’s better than the
overall merger market, which has seen volume fall significantly over 2022.
Now in our annual look at sell-side merger fees, the smaller firms say
they are doing well. Their merger fee income will grow this year, and most
said their profits will hold flat or increase. The giant Wall Street firms, by
contrast, are suffering from declining earnings.
Merger fee levels, the advisors say, are holding steady, and more than
one-fifth of them have raised fees this year. When we probed about the
specific fees and terms they use, the answers were similar to those last
year, with one exception. This year, it’s more common to have success
fees that decline as the deal value rises, the so-called Lehman Formula.
Last year, the most frequent structure was a success fee that increased
for larger deals.

If we created an engagement letter based on the most common

answers from this year’s survey, we would include these terms:
• A one-time work fee of $15,000 to $25,000 that will be
deducted from any success fee.
• A success fee with a specified minimum and a commission
rate that decreases if the sale price is above a set amount (the
Lehman Formula).
• The overall success fee would depend on the deal size:
• 4%-6% for $5 million and $10 million deals.
• 2%-4% for $20 million and $50 million deals.
• 1%-2% for $100 million and $150 million deals.
• The success fee is payable at closing.
• The client reimburses the cost of travel and accommodation.

M&A FEE GUIDE 2022-2023 PARTNERED WITH AXIAL & DIVESTOPEDIA 4

Methodology
SINCE 2016, FIRMEX HAS MONITORED the often murky world of merger
advisory fees through regular surveys of middle-market investment
bankers, brokers and other advisors.
This year we are conducting two parallel studies, as we did in 2021. This
one covers North America, and a separate report looks at European fees.
The results in this report are based on an online survey that was completed
by 523 middle-market professionals in late October and early November
2022.
Most respondents work in the United States (84%) or Canada (14%),
with 2% in Latin America. Within that region, the advisors surveyed are
geographically dispersed, working in nearly 200 different cities, most
frequently New York, Toronto and Chicago.
Three-fifths of them work as investment bankers or merger advisors, and
another fifth call themselves business brokers. Many of them are leaders
at their firms. More than half of the respondents are chief executives or
managing partners. Another 36% are partners, managing directors or
other senior leaders.
Three-fifths of the advisors are generalists. Of those with specialties, the
two most common are manufacturing and construction & transportation.
The 2021 survey had 269 North American respondents. The 2020 survey
had 219 respondents from the Americas.

M&A FEE GUIDE 2022-2023 PARTNERED WITH AXIAL & DIVESTOPEDIA 5

Contributors

Alfredo Garcia John Carvalho

Director & Head of Sell-Side, Axial President, Divestopedia

T +1 646 606 2205 T +1 780 932 3632

E alfredo.garcia@axial.net E john@divestopedia.com

ALFREDO GARCIA leads the sell-side team JOHN CARVALHO is president and founder of
at Axial, responsible for Axial’s deal-sourcing Divestopedia Inc., the leading online educational
efforts. He leads the new business acquisition resources for selling a mid-sized business.
and customer engagement teams across Axial’s
investment banking, M&A advisory, business John is also the founder of Stone Oak Capital Inc.,
broker, and private company categories. a middle market M&A advisory firm providing
sell-side, buy-side and valuation services.
Prior to joining Axial in 2018, he worked as an
investment banker at PNC Bank, in their Asset Throughout his professional career, John has
Backed Finance group in New York City. Alfredo invested and been involved in the strategic
graduated from the University of North Carolina at operations of multiple private businesses across
Chapel Hill, with a B.S. in Business Administration various industries. John is a recognized thought
and a minor in Music. leader in middle market M&A and has completed
deals totaling over $1 billion in value.

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Overall Revenue and Fee Levels
The post-pandemic surge in dealmaking in 2021 continued to keep advisors busy in 2022. Slightly more than half
of them said their total revenue from merger and acquisition fees will be higher this year than last.
“We had a significant amount of deals in the pipeline prior to the market getting out of whack,” said a business
broker in Portsmouth, NH.
Driving the revenue growth, advisors said, was an increase in deal size and the continuation of long-term trends
that encourage aging small business owners to sell their companies.
“We are closing fewer, larger deals this year, but we have increased our deal size requirements,” said Aaron
Solganick, CEO of Solganick & Co. in Los Angeles, “We are closing larger transactions overall.”
Even in uncertain times, hard work pays off, many said. Matt Baas, an advisor with Calder Capital in Grand Rapids,
said revenue growth came from “grit, determination, focus on goals, and constant tracking of metrics.”
Generally, that revenue was driven by volume rather than fee increases. Only 20% of advisors raised their success
fees this year. Slightly more increased their upfront (26%) or periodic (29%) work fees. Very few advisors said they
cut fees.
The most significant force affecting fee levels, the advisors said, was competition. Rising costs, especially for
labor, was a main reason that firms are raising prices.
“Retainers are going up with the uncertainty in the marketplace, said Garren Work, vice president of Acquivest
Financial Group in Orlando.

Contributor Commentary

The uncertainty in the current market, with regards to increasing recessionary

pressures, seems to have translated to an increase in fees likely due to more
economic risk factors that can derail a transaction. The survey data also shows
increases in work fees being charged which could be attributed to higher inflation
costs (i.e. salaries) at M&A firms. ­—John Carvalho, Divestopedia

This was a surprising result of the survey given 2021 was such a banner year and the
macroeconomic headwinds of 2022. Two factors that could be contributing to this
trend: 1. The broader prevalence of the Lehman fee in 2022 vs. the accelerator fee in
2021 (see page 14.) 2. Overwhelming demographic tailwinds from the baby boomer
population (millions retiring each year and looking to transfer SMB ownership.)
—Alfredo Garcia, Axial

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Overall Revenue and Fee Levels CONTINUED

How do you expect your firm’s revenue from mergers and acquisition fees in
2022 to compare to 2021?

54%
INCREASE
28%
REMAIN FLAT
18%
DECREASE

Observations: M&A Revenue

Business is very robust. Many owners are aging out in 2021 was a record year with low interest rates and
the rustbelt industries that I work in. little concern over a recession. 2022 has significantly
—Business Broker, Pittsburgh higher rates and looming fears of a recession
affecting the market. Some buyers have paused
It’s a strong environment for strategic buyers seeking acquisition strategy, while sellers are worried they will
growth through bolt-on acquisitions. take a discount on what they think their company is
—Investment Banker, New York worth. —Investment Banker, Baltimore

By all accounts, last year was a blowout year for Overall, it has been a good market. More recently,
middle market deals. This year has been great, just fear of recession is impacting buyers’ appetite to
not quite at the record pace seen last year. We saw a participate, and sellers are beginning to consider
lull this summer in deal activity, but October changed timing. —Investment Banker, Vancouver
all that and things are looking strong for the first
half of 2023. —John Slater, Managing Director, FOCUS
Investment Banking, Washington

M&A FEE GUIDE 2022-2023 PARTNERED WITH AXIAL & DIVESTOPEDIA 8

Overall Revenue and Fee Levels CONTINUED

For deals of similar size and complexity, how have your fee levels
changed in 2022?

FIXED (LUMP SUM) FEES MONTHLY OR HOURLY RETAINERS SUCCESS FEES

70% 75%
66%

26% 29%
20%
5% 6% 4%
INCREASED REMAINED DECREASED INCREASED REMAINED DECREASED INCREASED REMAINED DECREASED
FLAT FLAT FLAT

Observations: Fee Levels

Strong deal flow has allowed the marketplace to push We had not increased prices in several years. Now,
all parts of the fee equation higher. inflation is driving us to increase our retainers and
—Erik Endler, Senior Managing Director, Three Twenty- success fees. —Investment Banker, Los Angeles
One Capital Partners, Columbia, Maryland
Deal volume has increased, so we are pricing more
What other market participants are charging is the aggressively. We’re also doing larger deals, so our
biggest force affecting our level of fees. Second success fee is larger. —Investment Banker, Detroit
would be the ability to portray the value we can deliver
prior to their engagement. And the third would be Experience and sector expertise increase the
supply and demand. There is a limited amount of percentages we are able to charge; competitor
qualified M&A firms in the marketplace compared to proposals often lower them.
the amount of businesses looking to transact. —Investment Banker, Boston
—Scott Duke, Founder, OpnRoad, Revelstoke
Our success fees have increased over last year,
We have 38 years of using the same fee structure, driven by strengthening of our brand and longer
and our volume is record-setting. track-record. —Managing Partner, Houston
—President, Minneapolis

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Engagement Fees
In the North America, 81% of the middle market advisors charge an engagement fee, also known as a retainer or
work fee. That’s slightly down from last year when 86% of advisors said they charged engagement fees.
The most common format is a single up-front retainer, used by 44% of the advisors. Monthly fees were used by
31% and hourly fees only by 4%.

For sell-side transactions, do you charge an engagement/work/retainer fee,

and if so, how is it most commonly structured?

44%
FIXED
42%
31%
MONTHLY 35%

NO ENGAGEMENT/ 19%
WORK/RETAINER FEE
14%

HOURLY
4%
9%
2022
OTHER 3% 2021

Contributor Commentary

It is very surprising to me that 19% of respondents are not charging work fees. These
could be instances where new entrants in the M&A space forgo upfront fees in search
of a larger success fee. This could also reflect a more competitive M&A market, where
deal advisors will not charge work fees to win the sell-side engagement. ­
—John Carvalho, Divestopedia

A non-refundable fixed retainer fee is common across our sell-side members. It

ensures the seller is serious about pursuing a transaction, and the sell-side advisor is
compensated for their work to bring a company to market (preparing the CIM, teaser,
model, buyer list, etc.), even if the seller ultimately decides to walk away from a bona
fide deal. ­—Alfredo Garcia, Axial

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Engagement Fees CONTINUED

For firms that use lump sum fees, the most common amount is between $26,000 and $50,000. About one-third
typically charge $10,000 or less, and one-sixth charge more than $50,000.

What is your most common fixed (i.e., lump sum) engagement/work/retainer fee?

12%
LESS THAN $5K

9%

21%
$5-$10K

18%

16%
$10-$15K

18%

13%
$16-$25K

55%*

$26-$50K 22%

$51-$100K 10%

2022
MORE THAN $100K 5% 2021

* In 2021, highest option was $15,000 or more.

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Engagement Fees CONTINUED

For monthly fees, the most common level is between $5,000 and $10,000 a month. The fee levels reported are
lower than in the 2021 survey. The number of advisors charging $16,000 a month or more was 11% this year, down
from 20% last year.

What is your most common monthly engagement/work/retainer fee?

18%
LESS THAN $5K
17%

$5-$10K
49%
40%

$10-$15K
21%
23%

$16-$25K
8%
20%*
2022
2021
MORE THAN $25K 3% * In 2021, highest option was $15,000 or more.

Observations: Engagement Fees

As cost of capital increases, deals will get more We will turn off our monthly retainer after six months.
complex. We may begin charging for certain —Dave Kauppi, President, MidMarket Capital, Chicago
elements of the deal over and above the success fee,
such as capital structure and cash flow analysis post The middle-market advisor market remains very
deal close. —Managing Director, Cincinnati success fee biased. We are now insisting on retainer
fees for a minimum period of four to six months.
I have had minimal push-back on our engagement —Investment Banker, New Jesey
fees. I compete against many brokers who do not
charge retainers or work fees, and I consistently win We’ve decreased our retainers because of
deals. —Investment Banker, Pittsburgh competition. Some other bankers are working without
retainers, and they take the whole risk of a success
fee structure. —Investment Banker, Mexico City

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Success Fees
Success fees, typically a percentage of the transaction value, continue to be the bulk of revenue for merger
advisors. Only about one-third of advisors charge a flat-rate percentage for any deal size. The most common
structure this year, used by 40% of the advisors, is what is known as the Lehman formula, where the percentage
decreases for large deals. Another 18% use an accelerator formula, which increases the rate as the deal
size increases.
“My clients like flat percentages,” said Dylan Dahmann, CEO of Flashpoint Advisors in Houston. “It is easier to
understand, and they can relate it to real estate or commissions paid to the salespeople in their own business.”
When we asked advisors what their typical success fee rate would be for deals of various sizes, it mirrored the
Lehman formula, with lower rates for larger deals. The most common fee for a $5 million deal is between 6.1%
and 8%. For a $150 million deal, the most common fee is between 1.1% and 2%.
Compared to last year, success fees are higher for deals of $10 million and less. They remained constant for
deals between $20 million and $50 million. And they fell for deals of $100 million and above.
Of several factors that go into setting a sell-side success fee, the engagement size was the most commonly
cited, followed by the complexity of the transaction.

Contributor Commentary

In general, the data shows that as deal sizes get bigger, the success fee percentages
get smaller. Transaction-specific factors such as deal complexity, M&A activity, and
probability of closing will determine where the success fees fall within the acceptable
range. ­—John Carvalho, Divestopedia

This shift YoY in fee structure aligns with trends in valuations. Advisors may be less
confident they can beat valuation expectations in 2022 vs. 2021, when buyers were
more willing to outbid. With less certainty of achieving the upside, advisors prefer the
Lehman, or double Lehman fee, at an increasing rate in these more uncertain times.
­—Alfredo Garcia, Axial

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Success Fees CONTINUED

For your sell-side success fees, what is your most common structure?

2022 2021

21%

40% FEE PERCENTAGE DECREASES FOR

LARGER DEALS (LEHMAN FORMULA)

38%

35% FLAT PERCENTAGE

18% FEE PERCENTAGE INCREASES

FOR LARGER DEALS
(ACCELERATOR FORMULA) 39%
8% OTHER 2%
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Success Fees CONTINUED

What would your success fee be on a deal of the following sizes?

LESS THAN 1% 1.1%-2% 2.1%-4% 4.1%-6% 6.1%-8% MORE THAN 8%

38% 37% 35%

33%
28% 28%
17% 18% 15% 14%
13%
6% 9%
1% 1% 2% 3% 4%
$5 MILLION 2022 2021 2020 2022 2021 2020 2022 2021 2020 2022 2021 2020 2022 2021 2020 2022 2021 2020

50% 48%
40%
34%
28% 27%
11% 14% 13% 10%
1% 1% 3% 3% 7% 4% 5% 2%
$10 MILLION 2022 2021 2020 2022 2021 2020 2022 2021 2020 2022 2021 2020 2022 2021 2020 2022 2021 2020

51% 49%
41% 38%
32% 27%

5% 9% 12% 14% 5% 6% 5%
2% 2% 1% 1% 0%
$20 MILLION 2022 2021 2020 2022 2021 2020 2022 2021 2020 2022 2021 2020 2022 2021 2020 2022 2021 2020

59% 58% 55%

24% 20% 27%

10% 12% 6%
4% 6% 8% 2% 2% 3% 1% 1% 1%
$50 MILLION 2022 2021 2020 2022 2021 2020 2022 2021 2020 2022 2021 2020 2022 2021 2020 2022 2021 2020

59%
48% 49%
35%
28% 28%
9% 9% 14%
2% 4% 5% 1% 2% 4% 1% 2% 0%
$100 MILLION 2022 2021 2020 2022 2021 2020 2022 2021 2020 2022 2021 2020 2022 2021 2020 2022 2021 2020

58%
51% 51%

19% 19% 22% 18% 24% 18%

1% 2% 3% 1% 1% 4% 1% 2% 4%
$150 MILLION 2022 2021 2020 2022 2021 2020 2022 2021 2020 2022 2021 2020 2022 2021 2020 2022 2021 2020

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Success Fees CONTINUED

What factors are taken into consideration when proposing a success fee
percentage for a sell-side engagement?

76%
ENGAGEMENT SIZE 77%
68%
58%
COMPLEXITY ASSOCIATED
WITH TRANSACTION 56%
65%
49%
RISKINESS ASSOCIATED WITH
CLOSING TRANSACTION 48%
46%
OVERALL M&A ACTIVITY 27%
WITHIN FIRM OR IN MARKET 24%
(SUPPLY/DEMAND)
23%
MULTIPLE ADVISORS PROPOSING 22%
ON ENGAGEMENT (I.E. M&A 17%
ADVISOR BAKE OFF)
18%
22% 2022
EXISTING FIRM RELATIONSHIP
WITH CLIENT 25% 2021
26% 2020

Observations: Success Fees

We’ve created a sliding scale at times, with Our fee structure has not changed. We have a
breakpoint incentives for achieving higher enterprise minimum success fee, with greater points from the
values. —Investment Banker, New York transaction value as it gets higher.
—Investment Banker, Baltimore
Increase in transaction size has caused our success
fee structure to remain flat on a percentage basis. The more sophisticated the client, the more likely they
—Managing Director, Omaha, NE are to pay success fees based on consideration paid.
Unsophisticated sellers are more likely to want fixed
We increase our success fee rates when we have fees because they think they know what the ending
more work than we can handle or when deals are sale price will be and don’t see the value in running a
more challenging to navigate. —Jim Friesen, Managing process. —Managing Director, Rochester, NY
Partner, Portage M&A Advisory, Toronto

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Additional Terms
Beyond the fee levels, the additional terms associated with the engagement can have a significant effect on the
overall revenue from a deal. In an environment where it’s taking longer for deals to be completed and success
rates are falling, there could be more need for break fees that are payable when a client rejects a bona fide offer.
This year, however, only one in five advisors charged a break fee, down from one in four in 2021.
More than half of the advisors (56%) said they deduct the engagement fees paid from the success fee. That’s
down from 72% last year. Some advisors said they only agree to this structure when responding to pressure to
cut fees.
“I only deduct my work fee if I think I need to in order to win a deal,” said the head of an advisory firm in Pittsburgh.

Do you most commonly deduct collected engagement/work/retainer fees from

success fees earned?

2022

56% YES 35% NO 9%

OTHER

2021

72% YES 28% NO

Contributor Commentary

It seems that, when negotiating sell-side fees, M&A firms are pricing-in the current
increased risk of closing deals due to market uncertainty. This is evidenced by
the increasing percentage of work fees not being deducted from success fees
and increasing percentage of firms charging a minimum success fee. In my firm’s
engagements, we like to establish minimum success fees, as they set the watermark
value expectation between us and our clients. ­—John Carvalho, Divestopedia

It is interesting to see a YoY percentage decrease in advisors expensing their travel

and accommodation back to their clients. While in-person meetings continue to be
valuable, with the prevalence of Zoom, they have become less critical. As companies
have become more expense-sensitive in 2022, it’s not too surprising to observe that
advisors are less likely to expect reimbursement. ­—Alfredo Garcia, Axial

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Additional Terms CONTINUED

More firms (75%) now have minimum success fees, up from 67% last year. And 56% expect payment of the
success fee on the full transaction value at the time of closing, even if some of the consideration for the acquisition
will be paid over time, such as with an earnout.

Do you most commonly charge a minimum success fee?

2022

75% YES 25% NO

2021

67% YES 33% NO

Do you commonly charge a break fee when a client rejects a bona fide offer?

2022

19% YES 81% NO

2021

25% YES 75% NO

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Additional Terms CONTINUED

If a success fee is earned, when is it most commonly paid?

2022 2021 2020

56% 55%
IN FULL ON CLOSING REGARDLESS WHEN THE
COMPONENTS OF THE PURCHASE PRICE ARE
RECEIVED BY THE VENDOR
57%

38%
WHEN THE COMPONENTS OF THE PURCHASE
PRICE (I.E., SELLER FINANCING OR
EARNOUTS) ARE RECEIVED BY THE VENDOR

6% OTHER 43% 45%

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Additional Terms CONTINUED

Travel and accommodation are the expenses most typically reimbursed by clients. One-third of advisors say their
expenses are not reimbursed, a significant increase from last year.

What expenses incurred by your firm on sell-side engagements are most

commonly reimbursed by your clients?

2022 2021 2020

66% TRAVEL AND

ACCOMMODATION 76%
80%

31% VIRTUAL DATA ROOM

43%
15% PRINTING AND
MATERIALS COST
43%

32% EXPENSES ARE 24%

TYPICALLY NOT
REIMBURSED 24%

3% OTHER 23% 17%

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Profitability and Pressure to Cut Fees
Very few advisors (12%) said they are seeing increased pressure from clients to cut their fees. That’s down sharply
from last year, when 20% said fee pressure was increasing. When we probed further, some advisors did say they
might give a break to sellers that have already identified a buyer. And some have alternative structures they
propose to clients that balk at their standard rates.
“We may agree to lower the standard fee scale if the client agrees to a much higher fee percentage above a
certain target enterprise value for the deal,” said Nicholas Somos, M&A lead at Left Lane Associates, in Toronto.

Contributor Commentary

Profitability at M&A firms is significantly driven by the ability to close transactions.

Work fees represent a nominal investment for a business owner to engage a qualified
advisor, but success fees on closing represent most of the overall compensation.
Because of this, experienced M&A professionals will continue to select the best M&A
opportunities with the highest probabilities of closing. ­—John Carvalho, Divestopedia

Compared to last year, how has the pressure from clients to cut fees changed?

12%
MORE PRESSURE
75%
ABOUT THE SAME
13%
LESS PRESSURE
TO CUT FEES PRESSURE TO CUT FEES TO CUT FEES

Observations: Pressure to Cut Fees

We might cut fees a little. If clients press too much We have adjusted success fees down by 1% or 2%
and the complexity of the deal is large, we walk. when a company is well positioned to sell.
They’ll learn later. —Steve Wain, President, Calder —Scott Duke, Founder, OpnRoad, Vancouver
Associates, Wesley Chapel, Florida
Depending on the engagement and the interest of our
We typically don’t change fees unless the request firm, we have made adjustments by taking equity and
is minimal and reasonable. When asked to make or warrants. —CEO, Toronto
adjustments, 95% of the time we don’t.
—Senior Advisor, Dallas I don’t invite negotiation of our fee schedule, but I do
negotiate when required. —CEO, Verona, WI
When there is pressure to reduce the success fee,
we increase the monthly work fee. I’ll only adjust fees if I really, really want that specific
—Paul Simpson, Managing Director, Norton McMullen engagement and there’s a lot of competition.
Corporate Finance, Toronto —Managing Partner, Bonsall, CA

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Profitability and Pressure to Cut Fees CONTINUED

Putting all these factors together, most advisors were quite profitable in 2022. Nearly half (48%) said their
profitability was the same as it was in 2021, while 36% said their profitability increased. Only 14% said their firm
was less profitable this year and just 1% said they didn’t make a profit.
Many advisors said their costs are going up because it is taking longer to close deals and salaries are rising.
“We are dealing with inflationary increases in wages, overhead and utilities, yet our fee arrangements are fixed,”
said an investment banker in Minneapolis.
For most firms, however, these expenses have been more than offset by increasing deal sizes and the
correspondingly larger success fees.

Considering both fees and expenses, how has the profitability of your M&A
business changed in 2022?

36% MORE PROFITABLE

48% ABOUT THE SAME PROFITABILITY

14% LESS PROFITABLE

1% NOT PROFITABLE

Observations: Factors That Affect Profitability

With shakier markets, we expect our success Automation = lower cost and faster transactions.
rate to decrease. —Martin McGrath, Managing Partner, Cornhill
—­Steve Lee, CEO, Layer 7 Capital, New York Walbrook, Toronto

We’re targeting larger deals that only need three to Inflation leading to a possible recession that will lower
four deal professionals staffed on them. valuations. It’s already happening!
—Aaron Solganick, CEO, Solganick & Co., Los Angeles —Founder & Partner, Rockledge, FL

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Outlook and Conclusions
Middle-market advisors, as we’ve said, are optimistic and determined, but
they aren’t oblivious to reality. When we asked about their expectations
for next year, most of them agreed with Chris Kern, managing partner
of Windstream Partner in Phoenix, who said: “With economic and geo-
political headwinds going into 2023, it will likely be a challenging year.”
While volume may slow and margins may be squeezed, most of the
advisors said they will be able to maintain their fee structures because of
the value of the service they deliver.

Observations: 2023

Costs are significantly higher due to necessary adjustments in 2022 from

competition for quality bankers.
—Bob Forbes, President, Forbes Partners, Denver

We will be less profitable. Revenues will likely decline, but we have not cut
expenses. —CEO, Boston

As deal volume slows down along with anticipated lowering of valuations,

we expect fee revenue to be lower commensurate with the economic
environment.
—Michael Schuster, Managing Director, Cross Keys Capital, Fort Lauderdale

As the difficulty and complexity of transaction increases due to more

economic risks, fees should increase. But as the markets contract,
competition will drive fees down, so the business will be less profitable.
—Joe Durnford, Chairman, JD Merit & Company, Denver

We expect 2023 to be a very solid year, given the number of engagements

that we’ve signed in Q3 and Q4.
—Jim Friesen, Managing Partner, Portage M&A Advisory, Toronto

I believe we will keep our fee structure the same as last year and this year.
The exception will be if 2023 crashes and it’s more difficult to transact. We
will then raise our fees charged due to the increased risk of not being able
to close. —Aaron Solganick, CEO, Solganick & Co., Los Angeles

M&A FEE GUIDE 2022-2023 PARTNERED WITH AXIAL & DIVESTOPEDIA 23

Concluding Comments

This year, it appears that the current M&A environment has

advisors negotiating M&A fee structures that mitigate the
increasing risk of failed transactions. Some examples of this
are the increasing percentage of firms not netting work fees
against success fees, and charging a minimum success fee.
Overall, the range of success fees based on deal size
has stayed relatively consistent year over year, but with
market uncertainty, other terms within M&A engagements
have moved the risk of payment from being contingent on
closing, to more certain through work fees.
For business owners, negotiating fair success fees and
engagement terms is extremely important, but even more
important are the quality and integrity of the engaged M&A
advisor. I highly recommend that all business owners solicit
proposals from several M&A advisors to compare fees,
engagement terms, experience and chemistry.
—John Carvalho, Divestopedia

The 2022 survey results reflect what has been a mixed year
in lower middle-market M&A. Strong deal flow continues
to drive activity and increased revenue for M&A advisors,
however, increased costs and deal complexity have cut into
increased profitability.
As the economic environment has changed year over
year, so have advisors’ preferred fee structures, reflecting
the anticipated pressure on valuations, and increases in
deal breakage.
In 2023, business owners can expect advisors to continue
to seek out fixed and minimum engagement fees, and must
carefully consider expected deal size when negotiating the
success fee percentage. So long as deal activity remains
high, advisors will continue to stay busy, making it critical for
business owners to take the time to carefully plan their exit
and seek out the right transaction partners.
—Alfredo Garcia, Axial

M&A FEE GUIDE 2022-2023 PARTNERED WITH AXIAL & DIVESTOPEDIA 24

Appendix: Respondent Demographics
Which of the following best describes your current occupation?

INVESTMENT BANKER/M&A ADVISOR 63%

BUSINESS BROKER 19%

EXECUTIVE 6%

CORPORATE/BUSINESS DEVELOPMENT 4%

LAWYER 4%
INVESTOR (FUND MANAGER,
FAMILY OFFICE, ETC.) 3%

OTHER 1%

What is your job title?

HEAD OF FIRM
(CEO, MANAGING PARTNER) 54%

EXECUTIVE (MANAGING DIRECTOR,

VICE PRESIDENT, PARTNER) 19%

SENIOR EXECUTIVE
(SENIOR MANAGING DIRECTOR, 10%
SENIOR VICE PRESIDENT)

C-SUITE (CFO, PRESIDENT, CXO) 7%

STAFF (ASSOCIATE, ANALYST) 7%

INVESTOR (FUND MANAGER,

FAMILY OFFICE, ETC.) 3%

M&A FEE GUIDE 2022-2023 PARTNERED WITH AXIAL & DIVESTOPEDIA 25

Appendix: Respondent Demographics CONTINUED
Do you specialize in any of the following industries?

GENERALIST 62%
MANUFACTURING 29%
CONSTRUCTION AND
TRANSPORTATION 29%
TECHNOLOGY, MEDIA AND
TELECOMMUNICATIONS 26%
HEALTHCARE 16%
CONSUMER AND RETAIL 15%
FINANCIAL SERVICES 12%
REAL ESTATE 10%
OIL & GAS AND MINING 5%
RENEWABLE ENERGY 5%
OTHER 4%

How many total employees does your firm have?

5 OR FEWER 51%

6-20 28%

21-50 9%

51-100 5%

101-500 3%

501+ 4%

M&A FEE GUIDE 2022-2023 PARTNERED WITH AXIAL & DIVESTOPEDIA 26

Appendix: Respondent Demographics CONTINUED
What is your minimum transaction value?

LESS THAN $5M 46%

$5-$9M 25%

$10-$19M 12%

$20-$49M 12%

$50-$100M 3%

$100M+ 2%

Are your clients:

MOSTLY SELL-SIDE 74%

ROUGHLY AN EVEN SPLIT

OF BUY- AND SELL-SIDE 17%

MOSTLY BUY-SIDE 9%

M&A FEE GUIDE 2022-2023 PARTNERED WITH AXIAL & DIVESTOPEDIA 27

Appendix: Respondent Demographics CONTINUED
How many sell-side engagements does your firm work on in an average year?

LESS THAN 1 FULL DEAL 8%

1-5 40%

6-10 20%

11-15 13%

MORE THAN 16 18%

M&A FEE GUIDE 2022-2023 PARTNERED WITH AXIAL & DIVESTOPEDIA 28

About Axial
Founded in 2009, Axial is the largest online transaction platform empowering lower middle
market deal makers. Axial’s proprietary matching technology enables advisors & business
owners to confidentially connect with relevant buyers & investors. Over 3,400 advisors and
2,000 corporate and financial buyers have joined Axial to efficiently connect with relevant
capital partners, source actionable deals, and build new relationships.

CONTACT AXIAL
Kristina Mayne
Director, Marketing
kristina.mayne@axial.net

axial.net

@AxialCo
linkedin.com/company/axial

About Divestopedia
Divestopedia is a leading resource for all topics related to Middle Market M&A. We provide
educational insights and tools to help business owners and intermediaries effectively
complete transactions.

For more information, please visit divestopedia.com.

CONTACT DIVESTOPEDIA
John Carvalho
President
john@divestopedia.com

divestopedia.com

@divestopedia
linkedin.com/company/divestopedia
About Firmex
Firmex is a global provider of virtual data rooms where more deals, diligence, and compliance
get done. As one of the world’s most widely used virtual data rooms, Firmex supports complex
processes for organizations of all sizes, including diligence, compliance, and litigation.
Whenever professionals need to share sensitive documents beyond the firewall, Firmex is their
trusted partner.

A Firmex subscription provides simple, safe, and stress-free document sharing without hidden
costs or complexity. Since 2006, Firmex has helped thousands of companies worldwide take
control of their confidential documents.

For more information, please visit firmex.com.

CONTACT FIRMEX CONTACT SALES

Mark Wright North America: +1.888.688.4042
General Manager Europe: +44 (0)20.3371.8476
mwright@firmex.com International: +1.416.840.4241
Email: sales@firmex.com
Website: firmex.com

@firmex
linkedin.com/company/firmex

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