Connect with us

Finance

M&A How Industry Leaders Structure Their Deals – Fee Guide 2017

shaking hands

Each year, multiple Mergers & Acquisition transactions and deals with a combined value of hundreds of millions of dollars are structure and closed on a worldwide basis. These transactions represent multiple industries, which reflect the vast amount of fees that also take place and vary from one industry to the other.

During the year of 2017, Firmex and Divestopedia have released their second annual Mergers & Acquisition Fee Guide that dispels how of advisory firms and other associated professionals across multiple industries structure their M&A fees.

With there being a large lack of transparency within this industry as a whole, it is difficult to fully determine what fees are being charged across various markets spectrums. However, the results indicated below reflect the fee structure that represents 671 professionals within the general investment banking and advisory industry on a global basis –all of who were willing to participate in the study of largely middle market mergers & acquisition fees.

Global Responses

In an effort to obtain a wider geographic perspective on the results gathered from this study, the following reflects responses from professionals that worked in the investment banking, M&A and similar industry from across the globe.

From a global perspective, the US takes the lead with respect to the total participants represented in this study at 42%, followed by the Western Europe / Scandinavia region that represents 32%.

Additional regions represented reflect a decline in terms of their level of participation to include Canada, Latin America, and Asia, all of which represent 6%. Eastern Europe / Russia represent 3% of the total participants, whereas Australia and the Middle East both represent 2%. Africa had the lowest level of participation, which represents 1%.

Responses Based on Market Sector

The lion’s share of the participants were Investment Bankers and/or Mergers & Acquisition Advisors. They account for a total of 471 or 70% of the total respondents that have structure deals during the year of 2017.

Seventy-four or 11% of them represent the Business Development industry, whereas 51 or 7% represent Business Brokers. Lawyers and Attorneys account for a total of 34 of the total respondents surveyed which represents 5% and 33 or another 5% is represented by professionals who work in other industries.

Only 15 Accountants were represented in the 678 respondents, which is a reflection of only 2%, which represent the lowest industry included in this survey.

Transaction Value

The majority of the respondents, (37%) have indicated that the minimum deal size worked on at their farm is $5 million or lower, whereas deals that are $100 million or more is only represented by 4% or 18 of the total 678 respondents. What this indicates is that the larger the deal the fewer respondents. This means that more mid-size deals have taken place in the range of $5 to $10 million, which reflects 24% and 17% of the total respondents respectively. 11% represent deals with a value of $20 million and only 7% represent transactions valued over $50 million.

The transactions represented here are associated with industries that include the generalist market, which represents 23%, the manufacturing, media, and telecommunications, as well as the technology industry all of which represent 14%. These areas were followed by the consumer and retail markets and the healthcare industry, both of which represent percent 8%.

Other industries include energy and power, financial services, other miscellaneous industries and the real estate industry, all of which represent 7%, 6%, 4%, and 2% respectively.

Success Fee In Relation To the Deal Size

After all is said and done, it’s the success fee that rewards professionals who structure and close deals in the M&A industry, most of which are rewarded very handsomely for their efforts. However, the majority of the success fees are impacted greatly based on the size of the deal. As the deal increases in value, the success fee experiences a decrease in relation to the total value of the deal.

Deals with a value of $5 million typically earn success fees between 4% and 6%, and in some cases between 2 to 4%, whereas others are between 6 – 8%.

The higher value deals such as those valued at $10 million have lower fees between 2 and 4%, however, some earn between 4 and 6%.

Transaction deals valued at $20 million typically earn between 2 to 4% which is reflected by the majority of the respondents (46.9%) whereas others 25.3% typically earn between 1 and 2% in success fees.

Obviously, the larger transactions valued at $50 million, typically earn between 1 to 2% or 2 to 4% in succession fees for each deal. And consequently, the larger deals valued at $100 or $150M typically earn between 1 and 2%.

Although these fees vary, there does appear to be a pattern which, suggest that there are industry standards or market rates that appear to be consistent with similar success fees earned within this industry.

Full PDF report:  Firmex.com/resources/ma-fee-guide-2017

BusinessArticles is the popular online Hub for quality business articles. We publish unique articles and share them with our social followers.

Continue Reading

Finance

What You Ought to Know About Quant Traders

trader

Quantitative trading is an area of quantitative finance that is highly sophisticated. This article introduces some of the basics of a quantitative trading system and the necessary background to become a qualified quantitative trader.

What is Quantitative Trading?

Quantitative trading or quant trading is a type of trading that uses quantitative analysis as the basic strategy to identify trading profit possibility, including mathematical calculations. The most common data inputs in the quantitative analysis are price and volume.

Transactions involved in quant trading are usually large, which includes the sale and purchase of hundred or even thousands of shares and securities. This is because quantitative trading is typically practiced in the financial institutions.

The four primary components of a quantitative trading system include:

  • Strategy identification
  • Backtesting strategy
  • Execution system
  • Risk management

What Does a Quant Trader do?

Quantitative traders, also known as quants, utilize modern technology, comprehensive databases, numbers and mathematics to derive a logical trading decision. Using mathematical models, quantitative traders then identify trading opportunities.

Quant traders research the available price and data from the enormous amount of data in algorithm trading and high-frequency trading, find profitable trading opportunities, create relevant strategies, and grab the opportunity faster with the help of computer programs.

Generally, quant traders need an in-depth understanding and knowledge of mathematics, possess computer skills, and have some exposure to trading.

Technical Background of a Quant Trader

To become a full-fledged quant trader, one needs to have the following professional background:

  • Great with numbers: Quant traders must be excellent with numbers and quantitative analysis. An in-depth understanding of mathematics is required to carry out trading activities such as data researching, results testing, development, and implementation of trade strategies.
  • Educated in a relevant course and training: Studies involving theoretical concepts and the introduction to quantitative trading provide a better background for quant traders. This may include a master’s degree or a diploma involving financial engineering, quantitative financial modeling, or any course with electives in quantitative.
  • Armed with unique trading strategies: Quant traders should have in-depth knowledge about common trading strategies and have the ability to develop their unique trading strategy.
  • Possess programming skills: Quant traders should know at least one programming language such as Python, Java, C++, or Perl. They also need to have knowledge about automated trading, data mining, analysis, and research, which are usually involved in algorithmic trading and high-frequency trading.
  • Familiar with the computers: Quant traders need to be familiar with analysis software, spreadsheets, and broker trading. Also, they should be able to develop their algorithms on real-time data.

Soft Skills of a Quant Trader

Besides the above-mentioned technical skills, quant traders need to possess the following soft skills:

  • The spirit of a trader: Successful traders will brainstorm innovative trading ideas, can take on a massive volume of data, quickly adapt to the ever-changing trading market and can work on extended hours.
  • Able to take risks: Quant traders are risk-takers that understand the impact of risk, its management, and mitigation techniques.
  • Accept failure: Although the developed strategy may seem foolproof, failure is sometimes inevitable. Quant traders must always be ready to accept defeat, willing to let go of their concepts and develop a new one.

Becoming a quant trader may seem complicated, and it requires a lot of hard work. However, the lucrative income and innovative system of quantitative trading make quant trader an excellent career choice.

Continue Reading

Finance

How can a personal loan help you save money?

piggy bank

People in debt have traditionally been unable to easily consolidate it all. In the past, the best tactic has been to focus on one type of debt at a time (usually starting with the debt accruing the most interest) to clear it.

About 20 years ago, a new product became available called a personal loan. These unsecured loans were designed to help people manage multiple debt sources and repair their credit score. As with most types of unsecured debt, applicants are typically expected to provide a guarantor. Such a loan can be anything from £1,000 to £50,000 with a fixed interest rate payable over a fixed term, typically 4-5 years or more. Applicants use these instant guarantor loans as they realise just how much money they can save when used in certain circumstances.

No matter the interest rate on existing debt, personal loans are lower

One reason most people take out a personal loan is to consolidate different debts of varying and disparate interest rates. If you have £5,000 on a credit card (typical APR 29.9%), £1,000 overdraft (typical APR 15-20%), £1,000 of debt on a store card (typical APR an eye-watering 39.9%) among others, that’s a lot of interest you’re paying every month needlessly.

When taking out a personal loan, you’ll notice that the APRs are much lower. The average rate is 8% when borrowing under £10,000 and 5% when borrowing over this amount. Pay off the outstanding balances with the new instant guarantor loan and you will stop accruing all that interest, clearing the balance instead.

Personal loans put a deadline on repayment

People, couples and families with a lot of debt spread over multiple areas often feel there is no end in sight for the debt. This is especially the case for those types of debt with no deadline such as an overdraft, and credit and store cards.

The ability to consolidate all this debt into one personal loan automatically creates a deadline. Sometimes you may choose this; sometimes the provider will specify when it will be. Not only will you know the rate of interest that will accrue on top of the debt, you will also know how long you have left to pay off that debt. The stress and anxiety of accruing more and more is alleviated and you can prepare for having more liquid cash once your personal loan comes to its natural end.

Early payment option will save more

With lower rates of interest than most common types of borrowing, personal loans help you save money as a matter of course. When you are able and willing to pay back the debt faster than anticipated, this will save you even more money.

Not all personal loans allow you to settle early, for example pay off the last six months of payments in a lump sum while the term remains, but most will. You may be required to pay an early settlement penalty or premium such as one-or-two-months interest. If there is an early repayment option, carefully check the agreement’s wording. Even with a penalty on top, it could still be less than the interest you would have paid if you had let the loan run its course.

Personal loans improve your credit score

Customers who use unsecured guarantor personal loans use them to consolidate and manage debt as well as reducing their interest burden. So long as you stick to the terms of the agreement and have enough money each month to make the payment, your credit score will begin its improvement process.

What does this have to do with saving money? It’s a long-term strategy. Most credit cards and loans are not open to people with a bad credit score, however, there are ways you could potentially be able to get a loan with a bad credit score. Unfortunately, those loans that are not open are usually those products and services with the best interest rates and the most attractive rewards. With an improved credit score, you can apply for credit products with lower interest rates, better payment terms, and even earn a little something in the process such as cashback or air miles.

Cheaper than finance agreements

Most of the items in our list concern people looking to improve their credit rating and those with borrowing spread across multiple accounts. If you’re in the market for a new or nearly new vehicle, the seller will offer financing terms. They tend to offer a single product with a single finance provider; in short, it’s a take it or leave it choice. This is not always the cheapest way to buy a new car, but it is convenient which is why most people accept the terms that the motor trader offers.

Before singing that finance agreement, consider a personal loan. Interest rates are lower on average than motor finance. When the vehicle’s price tag is over £10,000, that interest rate drops considerably, sometimes as much as half of the annual interest rate.

Continue Reading

Finance

Financing A Business With A Home Equity Loan

contractor

Finding funds for a business is no easy task. Qualifying for a business loan is not guaranteed; therefore many companies leverage their owners’ assets like the family home to raise the funds they require in their enterprise.

There are many ways to use personally guaranteed funds too and one option is what’s called a home equity loan or home equity line of credit, These loans can also be ideal for debt consolidation of say high-interest borrowing like credit cards, personal and short term loans but in this blog post we’re focusing on how these loans work for businesses.

There are many more obstacles or hoops to jump through when seeking an actual business loan and often it’s the financial statements of the business that fail to pass the lending criteria due to the startup phase requiring more investment and not showing a profit.

Entrepreneurs starting out, are therefore renown for sourcing investment from wherever they can get it. The credit card has been the go-to source for funds, but the interest rates are very high, so it’s not a long term borrowing solution for a business.

Before long, the owner is seeking other sources to keep the business afloat or to grow it. They may take out personal loans but before long their requirements exceed what they borrow without additional security so this is where many use their home.

As a business owner, it may make perfect sense to use a home equity line of credit to draw down funds for the business and then repay them when in lump sums and repeat as and when required. So what is a HELOC?

HELOC

This type of loan allows you to have an open line of credit on the equity you have in your property.

HELOC’s has longer repayment periods that can be 10 – 20 years much like a usual mortgage and as the property owner you can borrow up to 85% of the home’s value minus what you may owe it. For example, if your home is valued at $750,000 and you have a mortgage of $250,000 on it already. Your line of credit may be as much as $425,000.

HELOC rates are higher than your standard mortgage rate, so it’s very much ‘caveat emptor’ or buyer beware, get professional expert advice from your accountant, financial advisor and maybe also your lawyer. Remember all loan agreements are legal documents, and they have terms and conditions that the borrower must comply.

There are many other ways to fund your business, including angel investors, offering shareholdings, so while using the equity in your home is an option it may not be the best way forward as the risk is your business cannot pay back what it’s borrowed, and you are personally liable to repay it or lose it.

Remember it is your equity and if your business borrows too much of it and can not repay it, and the lender calls in the loan it could be that you are forced to sell your home. It’s a dreary thought, but it’s better to know the pros and cons when borrowing money for any venture.

Continue Reading

Trending