Why Clients Below $30 Million Rarely Get a Real Process, and What That Costs Them

The economics of a success fee at $15 million

A bank that runs a full sell-side process may commit a managing director, a vice president, an associate, and an analyst for five to eight months. Those people produce the valuation, the CIM, the buyer list, the outreach, the management meetings, and the offer comparison. The bank is paid at closing, as a percentage of enterprise value, and only if the deal closes.

On a $150 million transaction, that fee can cover the team several times over and the bank may compete hard for the mandate. On a $15 million transaction, the same team and the same months produce a fee that, even at a higher percentage, may not cover the bank's cost. The bank has two choices: decline, or accept and staff the engagement thinly. Either way, the owner of the $15 million company may not receive the process the owner of the $150 million company receives, even when the two companies are equally well run.

The result is a structural gap. Companies worth roughly $5 million to $30 million are large enough that a competitive process could change the outcome by millions of dollars, and small enough that the professionals built to run such processes may not be able to afford the work. Owners in that range are often told they are too small and pointed toward the alternatives.

What a broker listing does and does not do

The first alternative is a business broker. Brokers serve an important function at the smaller end of the market, and a good broker closes deals. But a broker's model is a listing, not necessarily a targeted process, and the distinction matters above a few million dollars of enterprise value.

A listing is posted to marketplaces and circulated to a broad audience of individual buyers, search funds, and small acquirers. The information in the listing is thin by design. Responses may be screened loosely, and the owner may field inquiries from parties who cannot finance the purchase. The buyers most likely to pay a full price for a $15 million company, private equity platforms with an add-on strategy in the vertical and strategic acquirers with a specific need, may not browse listings. They are approached directly, with a teaser that signals a serious process, by someone who knows they have closed similar deals.

A broker also charges a percentage of the sale, so the owner is still paying a success-based fee, often a higher percentage than a bank would charge, for a process that reaches a different and generally less qualified set of buyers. The exact fee and buyer coverage depend on the engagement and the broker.

The one-buyer negotiation and the information gap

The second alternative is the one many owners in this range actually take: they negotiate with the buyer who called. The buyer may be a private equity platform doing add-on acquisitions, and it may be experienced at this. It sends letters to companies in the vertical, follows up with the ones that respond, and offers a number that is attractive relative to what the owner expected but could be below what a competitive round would produce.

The owner, in this negotiation, is working with one data point. The buyer may be working with many. The buyer knows what it paid for prior add-ons and what it can afford to pay for this one while still meeting its return targets. The owner knows the buyer's number. There is no one at the table whose job is to tell the owner what the other buyers would say.

The owner's attorney, in the traditional model, is called when the LOI arrives. The attorney can see that the structure is heavy on earnout and the exclusivity is 90 days, but cannot see what another buyer would have offered, because no other buyer was asked.

The cost in price: an illustration

Consider an illustrative company with $2 million of adjusted EBITDA, a stable customer base, and a founder ready to retire. A single inbound buyer offers $10 million, five times earnings. The founder's friend sold a similar company for about the same multiple, so the number seems fair.

Now suppose the founder's attorney runs a process instead. Twenty-five buyers that have closed acquisitions in the vertical within two years receive a teaser. Fourteen sign NDAs. Six submit IOIs, ranging from $9.5 million to $13 million. The spread exists because different buyers have different synergies, different platform strategies, and different pressures to deploy capital. The highest bidder is a platform that needs the company's geographic footprint and will pay for it. The inbound buyer, told it is competing, raises its bid to $11.5 million and still does not win.

The $3 million difference between the inbound offer and the winning IOI is an illustration, not a measured market result. In a process with several bidders, a spread can arise from differences in buyer fit, strategy, and certainty. The amount a one-buyer negotiation leaves on the table cannot be known without running or reconstructing the comparison, and the cost of running the process also varies.

The cost in structure and in the re-trade

Price is the visible cost. Structure and the re-trade are the hidden ones.

In a one-buyer negotiation, the buyer proposes the structure, and the owner has no comparison. A $10 million offer with $6 million at close, a $2 million seller note, and a $2 million earnout tied to targets the buyer controls is a very different deal from $10 million in cash, but to an owner who has seen one term sheet, it is simply the deal. In a competitive round, the owner sees several structures side by side and can choose certainty over headline, or trade one for the other knowingly.

The re-trade is the price reduction a buyer proposes late in diligence, after exclusivity has run for weeks and the owner has told employees, family, and perhaps customers. In a one-buyer deal, the re-trade may be less costly for the buyer because the owner has no alternative and has already committed emotionally. In a process that produced several IOIs, the buyer knows that a re-trade risks losing the deal to the second bidder, who may still be interested and whose offer may still be on file. The existence of the second bidder, even one the owner never calls, can help keep the first bidder's price where it was.

Who else can produce competition at this size

The gap below $30 million exists because the professionals who produce competition are paid in a way that may not work at that size. The owner's attorney is paid differently. The attorney bills hourly or on fixed fees, has no analyst pool to cover, and already has the client's trust and the client's documents.

What the attorney has lacked is the production capacity to build the valuation, the marketing materials, and the buyer list. With that capacity supplied by software, the attorney can run the process that the bank declined or the broker could not provide at the same scope, at a cost the owner can see in advance. The firm should confirm its own position with its own counsel on how the federal M&A broker exemption and state rules apply to the activities it takes on and the fees it charges, and should structure the engagement accordingly. The federal framework includes conditions and excluded activities, including limits concerning custody of funds, financing, joint representation, passive buyers, and binding a party, so the facts and jurisdiction matter.[1] [2]

An attorney can act on this now with one client in the range: ask what the client would do if a buyer called tomorrow. If the answer is "take the call," a scoped engagement letter is the alternative.

How Acquivo Pro fits

Acquivo Pro supplies production capacity for a real process below $30 million. On one login the firm runs a deterministic valuation across 21 industry verticals, generates the teaser and CIM from the client questionnaire and data room, builds a prospect list tailored to the client using documented buyer criteria, and tracks NDA, IOI, and LOI flow in a single pipeline. It is priced per seat on a flat monthly subscription with no per-deal fees, so the cost does not scale with the client's size. Software prepares, organizes, matches, and tracks; the attorney and the client decide and act. To walk through a process on a client you have in mind, request a demo through the Contact page.