Welcome to our May Newsletter.
Below find some observations and data points on transaction fees, and then Michelle Mueller will share compliance updates and Zaya Bold will do so for banker collaboration.
To all of our success,
GT Securities, Inc.
A Modern Broker-Dealer for Independent Investment Bankers. Are You an Independent, Well-Credentialed Investment Banker seeking a modern, technology-driven broker-dealer platform on which to transact deals?
Then look no further.
GT Securities will work with you to design a customized broker/dealer relationship that factors in your transaction types and frequencies, compliance requirements, existing overhead and licensing requirements.
Take our quiz – “Do you have what it takes to run your own investment banking practice” to learn more.
Transaction Fee Data Points
Always of interest are current “market rates” as to banker transaction / success fees.
And how they permutate and vary across deal and securities types – M&A versus financings, equity versus debt, primaries versus secondaries, retained versus contingent deals etc.
While there is no perfect data set, on the GTS platform we have visibility into a solid cross section of deals across different industries, sectors, and deal types.
And importantly, recently forwarded to us was Firmex / Axial’s M&A Fee Guide that has some very good banker survey data on this very important topic.
Firmex starts by pointing out the long term trend of bankers working on fewer deals than ever before, and that as this trend continues the importance of maximizing value – for both the advisor and the client – on each and every deal.
They then share these M&A Success Fee ranges:
- 4% – 6% for deal sizes between $5 million – $20 million
- 2% – 4% for deal sizes between $20 million – $100 million deals.
- 1% – 2% for deal sizes greater than $100 million.
They also note that close to 40% of bankers now utilize a form of “Reverse Lehman,” with fee percentages increasing over certain purchase price thresholds. We see this as a win-win evolution – the advisor earning more as more client sale value is catalyzed.
Firmex’s report is limited to M&A, so financing fee data needs to be extrapolated and arrived at more anecdotally. On our platform, for equity deals we see a clustering around a 5% financing fee benchmark, which begins to compress at deal sizes of $20 million+ (though importantly not as often for secondaries versus primaries).
For debt, a simple rule of thumb is to cut the equity percentages in half, with 2 – 3% fee ranges representing the majority deals.
Two important caveats to the above:
- Higher, outlier fee structures (i.e greater than 6%) still do occur but over time are observed less so for financings versus M&A.
- Success fees paid in equity, usually in the form of warrants, remain a relatively standard ask, but to them we are seeing more client pushback to it than ever before (though as an aligned fee incentive remains strongly recommended).
Finally some data and thoughts on retainers and engagement letters.
Firmex’ survey shows 86% of M&A advisors charge a retainer. GTS’ blended data across deal types shows this percentage to be less, with many bankers increasingly of the mindset that it is often better to not charge a retainer so as to be able to end those “deals going nowhere” more elegantly and sooner rather than later.
As for engagement letters, please first see the compliance section below as to the extremely important regulatory and liability concerns as to client requested changes to agreements’ terms and conditions.
For fees, definitely one of the worst experiences an advisor can have is that when a deal closes but because of hasty concessions made in the redline process that weaken language as to term, tail, termination provisions, definitions of introduced investor / buyers – the advisor ends up either not having coverage at all or in a protracted fight to collect.
What to do? Well, like with most things, here it comes back to those timeless banker success factors – an abiding and consistent professionalism, a commitment to deep, long-term client relationships, a “win-win” deal-making mind set, and having a fine attention and appreciation to detail.
Be and do these things and see both one’s average fee per deal stay above industry average and when those deals close get paid on them without drama or hair cut.
How nice is that!
Foreign Regulatory Guide. Refer to this guide for a comprehensive summary of regulations surrounding multiple foreign jurisdictions and their registration requirements.
Common cybersecurity threats. Learn more about current cybersecurity threats here.
Michelle Mueller, Compliance Manager
Collaboration Deals. We receive many deal opportunities from our affiliate bankers and external partners and upon assessing them, we are happy to share select deals with our affiliate network. Please reach out to me to access a list of deals that are open for collaboration at [email protected] for further information.
Referrals. Do you know an investment banker looking for the benefits of independence and professionalism provided on the GT Securities platform?
We are always interested in speaking to highly ethical and credentialed banking professionals to join our platform, and starting in 2022 we are offering credits and bonus for referred bankers.
Please reach out to me at [email protected] to learn more.
Zaya Bold, Director of Banking Synergies
Happy May to All!