Axial Releases 2023 Investment Banking Fee Guide

How much does it cost to sell a business? That depends on what resources you need. Research consistently finds that M&A firms lend considerable value to a deal, ultimately fetching higher sale prices and more favorable terms. Yet many sellers remain reluctant to hire an investment banking firm because of concerns about the cost of doing so. The result is a lot of DIY sales that never get off the ground, or that don’t realize their full potential value.

But how much should you expect to pay when you hire an investment banking firm? Axial just released its 2023 investment banking fee guide. It may help owners assess whether fee structures are fair. There are also some pleasant surprises, including a general trend toward not increasing fees. Overall, the survey makes billing practices more transparent, and may help owners set realistic expectations about what they can expect from their M&A advisory firm. Firms that bill in a manner that is grossly out of step with industry norms should have a clear justification for doing so.

The survey looks specifically at middle market firms’ billing practices. These practices reveal more than just how much you can expect to pay to sell your business. They also lend insight into the wider M&A market and the economy. For example, an increase in deal volumes and values points to a thriving economy.

Some highlights of Axial’s 2023 survey include:

• The majority of investment banking firms reported keeping M&A fees the same in 2022 and 2021 when deal size and complexity were substantially similar. In spite of this, more than half of advisors said their revenues from M&A fees are higher in 2022 than 2021. This suggests a booming M&A market, and ongoing increases in deal value.
• Most firms report similar profitability levels in 2022 as compared to 2021. Those who reported a difference were more likely to report an increase in profitability than a decrease. This, again, points to a thriving M&A  market even as fears of a recession loom.
• More firms are cutting the retainer or work fee from their contracts. A total of 19% no longer charge such fees—an increase over prior years. This points to deal values that can justify a retainer-free agreement.
• The majority of firms (three-quarters) said that they were not experiencing increased pressure from clients to cut fees. This suggests that clients are generally happy with investment banking fees. Just 12% reported an increase in pressure to cut fees.

Investment banking fees are a worthy investment. The right M&A advisory team oversees the M&A process, shields owners from stress, empowers them to continue operating their company, screens and recruits buyers, develop comprehensive marketing materials, and shepherds the deal to completion, reducing the risk of failure and valuation surprises. Research on the role of M&A firms consistently finds that owners say the fees are worth it—and that the value increase is usually much higher than the banking fees.

You can view the full report here.