It seems like 2017 is the year of increasing costs for M&A firms. Data cost from large enterprise tooling providers have shifted and labor costs are on the rise all while more firms continue to enter the market competing for a finite number of deals.
Let’s do a quick cost comparison using a sample firm for reference below:
Regional, 3 Managing Directors, industry agnostic M&A firm operating in Texas and surrounding areas. The firm has been in business 15 years and takes on approx 14 client engagements each year.
Each MD is required to generate their own deal flow and manage the clients they bring to the firm. That said, they have less time to manage the deal prep and back office functions. These back office needs include: Prospect list compilation, buyer research, occasional financial modeling, industry reporting etc.
Historically, the firm has handled research in-house, carrying the following expenses:
Fully loaded the firm has paid as much as 102k per year to support its back office needs
Note; there is no requirement to purchase annually, however annual costs of 18k are 80% less than internal options.