What Does Fixed Success Fee Mean?
Fixed success fees are a predetermined amount for the work performed by an investment banker or M&A advisor to complete a transactions. Fixed success fees may be appropriate in situations where the banker can estimate the total amount of work (or hours) that will be required to complete the engagement.
Divestopedia Explains Fixed Success Fee
A negotiated sale where a buyer has already been identified prior to the engagement with the banker is a common instance when fixed success fees would be used. When a buyer has been identified, the investment banker can more easily estimate the amount of hours he or she will have to invest into the transaction. Additionally, when a buyer has already been identified, the business owner may be unconcerned with finding a higher bidder and therefore need not employ scaled fees to incentivize the banker to stimulate more bids. In a negotiated sale scenario, minimum hourly fees can also be structured, in lieu of work fees to cover the overhead cost incurred by investment banks. An upside fixed success fee would then be payment on successful completion of the transaction. Fees paid on a negotiated sale are typically lower than fees charged in a competitive auction process, given that the investment bank would not need to seek and approach multiple prospective buyers.