Buy-Side Advisory
Buy-side advisory is the work an investment bank or M&A boutique does for a buyer: finding and screening targets, making the approach, valuing the business, structuring the offer, running diligence and negotiating the terms to signing. The seller's adviser runs the process; the buyer's adviser gets the buyer through it at the right price — or tells it to stop.
- Also known as
- Buy-side adviser, Buy-side M&A advisory, Acquisition advisory
- Used at
- acquisitions by companies without a corporate development team, by funds on a competitive process, and by any buyer of a licensed fintech that has not bought one before
- Binding
- an engagement letter with a retainer, a success fee and a scope; the adviser owes the buyer its advice, not a result
- Typical fee
- a monthly retainer of €10,000–50,000 credited against a success fee of 1–2% of the deal value for mid-market deals (higher percentages below €20m, lower above €200m); the fee is paid on completion, which is why the adviser's incentive is to close and the buyer's job is to keep it honest
- Typical scope
- target search and screening, valuation and offer strategy, coordination of the diligence workstreams, negotiation of heads of terms and the sale agreement alongside the lawyers, regulatory strategy for a licensed target, and financing if needed
- Parties
- the buyer, its adviser, the target and its sell-side adviser, the diligence providers the buy-side adviser coordinates
How buy-side advisory works in practice
A buyer that wants to enter payments, or add a lending capability, or buy a competitor, engages an adviser. In a proprietary search the adviser builds a list of targets, ranks them against the buyer's criteria, approaches the ones the buyer chooses and turns interest into a negotiation. In an auction the adviser reads the process letter, values the target, advises on the indicative offer, coordinates the second-round diligence — accountants, lawyers, commercial and technology specialists — and drafts the binding offer and its mark-up strategy. Throughout, it tells the buyer what the business is worth, what the seller will accept, where the risks are and when to walk.
The value of the adviser is judgement and process. A buyer bidding alone in an auction pays what the seller's adviser can extract; a buyer with an adviser that has seen thirty payments deals knows what the market pays, what the diligence will find and which of the seller's terms are negotiable. For a licensed target the adviser's regulatory experience — what the regulator will ask, how long it takes, what conditions it imposes — is often the reason to hire one.
The conflict is the success fee: the adviser is paid if the deal closes, not if it was a good deal. Buyers manage this by retaining the adviser through the diligence and by making the walk-away recommendation a part of the scope — and by remembering that the best advice they will get is sometimes "don't".
Example
A software group with no deal team wants a payments capability and engages a boutique on a €25,000 monthly retainer and a 1.5% success fee. The adviser screens 40 payment facilitators and licensed providers, approaches six, and turns two into negotiations. For the preferred target — €5m of EBITDA, a licence, founders who will stay — it values the business at €42–50m, advises an opening offer of €44m, coordinates €280,000 of diligence across four providers, negotiates the heads at €48m with an earn-out of €4m of it, and manages the regulatory application with the buyer's lawyers. Signing is seven months after engagement; the fee is €720,000 less the €175,000 of retainers. The buyer's alternative — bidding on its own in the auction the other target ran — would have cost it more than the fee, in the price alone.
Common mistakes
- Hiring the adviser for the auction and not for the search, so the targets are whatever comes to market. - A success fee with no retainer, which buys an adviser that needs the deal to close. - Letting the adviser coordinate diligence and not read it. - No regulatory workstream in the adviser's scope for a licensed target. - Treating the adviser's valuation as the price rather than the ceiling.