What does an acquisition search cost?

We publish what selling costs, so it would be odd not to do the same for the buy side.

An acquisition search is priced differently from a sale, for a straightforward reason: on a sale there is an asset to sell and a reasonable chance of completing. On a search there is a brief, a market that may not contain what you want, and owners who are under no obligation to engage.

Where the fee actually goes

The work behind a search, before any target says yes.

The two components

A retained or upfront element

Covers the search work: defining the brief, building and qualifying the universe, and making the approaches. It exists because most of the effort happens before anyone says yes, and nobody does that work properly on a purely speculative basis.

It also does something useful for you. An adviser being paid to search is being paid to find the right business. An adviser paid only on completion is incentivised to find you a business, which is not the same thing and is how acquirers end up buying something adjacent to what they wanted.

The question is not whether there is a retained element but how large it is and what you get for it. Small and tied to defined work is reasonable. Large and tied to a twelve month engagement is where the risk sits.

A success fee on completion

A percentage of the enterprise value, payable when a deal completes. Typically lower as a percentage than the equivalent sell side fee on a comparable deal size, because the retained element has already covered the search work.

Where we sit

A small monthly retainer, and a 30 day deal sourcing pilot with a money back guarantee.

The retainer comes off the success fee. It is an advance against what you would pay on completion rather than a charge on top, so a completed deal costs you the success fee and nothing more.

The pilot is a defined piece of work with a defined output. We agree the brief, build and qualify the universe, and make the first approaches. At the end you see exactly what the market holds for your criteria, which is the question worth answering before anyone commits to a long search.

If it does not deliver, you get your money back. That exists because the honest answer to some briefs is that the market does not contain what you are asking for, and you should find that out in a month rather than a year of retainers.

The other costs of buying

The search fee is one line. Budget for the rest.

• Legal. Roughly £15,000 to £50,000 or more, driven by complexity rather than deal size. Property, multiple shareholders and earn outs all push it up
• Financial due diligence. Quality of earnings work, scaling with size and how clean the target turns out to be
• Tax structuring. Worth doing before heads of terms rather than after, and usually the spend with the best return
• Commercial or technical diligence. Sector specific. Accreditation and contract review in regulated sectors
• Lender fees. Arrangement fees, plus the lender’s own diligence costs

Guide only, and deliberately not tiered by deal size. Complexity drives these costs far more than price does.

The cost nobody budgets for

Deals that do not complete. You will spend real money on at least one target that falls over in diligence, and possibly more than one. That is not failure, it is the cost of doing diligence properly rather than discovering the problem afterwards.

Budget for it. Acquirers who have not tend to push through a deal they should have walked away from, because abandoning it feels like wasting what has already been spent.

Protect yourself, whoever you use

The same advice we give on the sell side applies here, and arguably harder, because a search has no asset to sell and no guarantee the market contains what you want.

Do not pay serious money upfront. The pattern that costs acquirers most is a large fee at the start, commonly fifteen to fifty thousand pounds, followed by a twelve month engagement. Thirty days in you have spent real money and seen nothing, and you are tied in.

A retainer covering genuine search work is reasonable, because three quarters of the effort happens before any owner says yes. A five figure payment before anyone has tested whether your criteria are findable is not the same thing.

Insist on a short proving stage. A defined piece of work with a defined output, answering whether the market holds what you are looking for, before you commit to a long search. If an adviser will not put one in front of a twelve month engagement, ask why.

Get these in writing before you sign:

• Is the retainer credited against the success fee, or charged on top? The most useful question on this list and the one almost nobody asks. Credited means it is an advance. On top means it is a separate cost
• What you will have seen after thirty days, specifically
• Whether any of the upfront money is refundable, and on what basis
• What happens if the market does not contain what you want
• The tie in and notice period, and whether a fee survives you walking away
• Whether a target you introduce yourself carries a fee
• Who makes the approaches, because owner level contact needs someone credible

Three questions worth asking any search adviser

1. Does anything I pay before completion come off the success fee? If yes it is an advance. If no it is a separate charge, and on a twelve month search that difference is large.
2. What proportion of your searches result in a completed acquisition? The same question that matters on the sell side, and the answer tells you more than the fee does.
3. What happens if the market does not contain what I want? A good adviser will tell you early. A bad one will keep searching while the retainer runs.
4. Who does the approaching? Owner level approaches need someone credible. If it is a junior working through a list, the response rate will show it.

Is it worth it

The honest answer is that it depends on what you would otherwise do. If you have a strong network in your sector and the time to work it, you may not need a search at all.

If you are entering a sector, buying a capability you do not have, or simply do not have the bandwidth to run a twelve month process alongside your own business, then the cost of the search is small against the cost of buying the wrong thing or buying nothing.