anywhere from 10 percent to almost 20 percent of total fees. There should be a written agreement ahead of time stating how much monthly retainer fees can scale to, and the maximum caps for the total period of this process. Expect to put up a minimum of $5,000 to $15,000 as an initial monthly retainer.
On larger deals, retainers can be at least $100,000. Larger firms have more overhead and don't need to beg for deals. They often filter by which deals are going to be the most profitable or notable to engage in. Expect equally notable retainers.
Reimbursement
In addition to covering their hourly work on the deal, you can expect to cover or reimburse investment banking companies for their out-of-pocket expenses associated with working your deal. This may include travel, hotels, and so on. Otherwise, they can end up spending a lot of money out-of-pocket up-front, without any guarantee of you coming through on closing the deal and recouping their hard costs.
Success Fees
Success fees are really like commissions. They are paid on the successful sale of your business and completed closing.
This is one of the best ways to ensure alignment. You only pay these fees when the deal is done and your company gets paid. Just always be sure to read the fine print and understand what the real distributions are for your investors, your team, and yourself.
There are several structures for success fees, like flat fees. This may especially apply on smaller, more work-intensive deals in which bankers want to make sure they cover their costs and needed margins.
Similarly, there can also be set percentages (for example, 10 percent). In this case, no matter how much or little your company is sold for, you pay the same percentage success fee.
There are also scaled percentage fees. Most common is the Lehman and Double Lehman.
The Double Lehman calls for the following fee structure:
10 percent on the first $1 million
8 percent on the second $1 million
6 percent on the third $1 million
4 percent on the fourth $1 million
2 percent on any additional proceeds
The regular Lehman scale is only half of these percentages.
There are also reverse-scaled percentage fees. So in contrast to the Lehman scale, business brokers or investment banking firms will earn an increasing percentage the more they sell your company for.
This may provide the most alignment and motivation for them to get you the highest price. How much you actually net and love the deal will still depend on the terms.
Keep in mind that on fundraising, anyone receiving a commission that is subject to the outcome of the transaction is required to be registered as a broker dealer with FINRA in order to comply with the rules of the SEC.
If you use a non-registered broker to facilitate a fundraise, and you pay that person a success fee, then in the event the company doesn't perform as investors expected, the company can literally sue you to get its money back for having used someone without the proper broker-dealer license.
However, in acquisitions, there is no need to be licensed as a broker-dealer. The SEC issued a no-action letter in 2014 that allowed people to be entitled to success fees without the need for registration.
Breakup Fees
Your agreement may also include breakup fees. Think of these as cancellation fees.
Breakup fees may be incurred if you change your mind, or back out of the deal and the banker has incurred costs, if you prove to be too difficult, or you haven't been transparent in representing what you have or in dealing with the potential buyers the banker has brought you.
Know how much the breakup fee is, because you'll have to pay it if you choose to walk away, if you turn down an offer that matches your ask, or you just choose to raise another round of financing or go public instead.
Average Fee Levels
Trends and fees can vary over time. As a very rough guide to fees, here's what you can expect to pay based on the acquisition price:
$0 to $10 million: 10 percent
$10 million to $100 million: 3 percent to 10 percent
$100 million to $1 billion+: 1 percent to 2 percent
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