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Finder’s Fee Agreements in Small Company Acquisitions

Monday, September 19th, 2011 by Paul Wormley

Earlier this week, I submitted a Letter of Intent to acquire a business that was introduced to us by an intermediary. We had engaged this intermediary under a finder's fee agreement to target small businesses on our behalf.

Finder's fees are also used when an intermediary is marketing a business for sale but the intermediary has not entered into a sell-side fee agreement with the business owner.  Earlier this year, Hadley Capital acquired a small business under this type of arrangement.

Our standard finder's fee agreement is based on a Lehman structure – roughly 5% of the first $1.0 million of value, 4% of the next $1.0 million, 3% of the next $1.0 million and 2% of the next $1.0 million and 1% of the remainder. The "value" of the acquisition is typically the consideration to the seller at closing – cash, notes, assumption of debt, etc. – plus employment/consulting agreements, leases and other payments that are above fair market value. Our standard agreement also includes a minimum fee to the intermediary. Shoot me an email and I will send you a sample of Hadley Capital's basic finder's fee agreement.

When we enter into a finder's fee agreement with an intermediary we promise a quick evaluation of the target and feedback to the intermediary regarding our level of interest. If we are not interested, we tell the intermediary quickly so he can market the opportunity to another buyer.

Please contact us if you are marketing a business for sale and seeking a buyer-paid fee or a success fee.

PDW


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Small Business Private Equity
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