What Fees are Payable on a Business Purchase?

What Fees Are Payable on a Business Purchase?

There are several categories of professional and transactional fees typically payable on an acquisition.

Types of Acquisition Fees to Budget For

These can include:

• Corporate finance advisory fees
• Legal support
• Financial due diligence
• Accountancy support
• Tax advice
• Independent financial adviser (IFA) / pension specialist input
• Funders’ arrangement and underwriting fees

How Business Purchase Fees Are Usually Funded

In most cases, these costs are rolled into the overall transaction and funded as part of the deal structure, rather than being paid entirely from your personal resources. As the buyer, you will usually inject a specified amount of private capital alongside the funding provided by lenders or investors at completion. From this combined capital “pot”, the various professional and transaction costs are settled, together with the initial cash consideration paid to the sellers.

What Is a Sources and Applications Statement?

These flows are typically summarised in a “Sources and Applications” (or “Sources and Uses”) statement, which might look, in simplified form, as follows:

Sources of Funds

• Private capital from you, the buyer: £100,000
• Capital from funder: £600,000

Total sources: £700,000

Applications of Funds

• Transaction costs: (£120,000)
• Day 1 payment to sellers: (£500,000)

Balance remaining as working capital: £80,000

What Level of Fees Does Each Party Charge?

Indicative fee ranges, which will vary depending on the adviser, deal complexity and overall transaction size, are as follows:

• Deal origination – usually a percentage of the deal value or a fixed fee for the specialist research and outreach required to source an acquisition.
• Corporate finance support – often in the region of 3%–5% of the transaction value.
• Accountancy fees – commonly between £3,000 and £5,000.
• Taxation advice – often between £2,000 and £5,000.
• Due diligence – typically in the range of £10,000 to £20,000.
• Legal fees – frequently between £15,000 and £25,000.
• IFA / pensions advice – generally a bespoke fee agreed on a case-by-case basis.
• Funding arrangement fees – normally 0.5%–1.5% of the total funding arranged.

How Much Should You Budget for Business Purchase Costs?

Depending on the deal size and whether you engage a full corporate finance advisory team, the aggregate of these fees can quite easily fall in the £100,000–£150,000 range.

As a prudent planning assumption, a buyer would be well advised to budget around £200,000 inclusive to ensure sufficient headroom for professional and transaction costs.