Creative Ways To Finance Deal Costs (QoA, Legal etc.)? (Self Funded)

January 20, 2019

by a searcher from University of Pennsylvania - The Wharton School in Philadelphia, PA, USA

Has anyone taken a more creative approach to fund deal costs beyond personal savings and the traditional search fund model? Have you found other financing sources? How did you frame your pitch? What did investment terms look like? Are lawyers and accountants open to taking some risk in exchange for other incentives - higher rates at the close of a deal for example?

Thanks!

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Reply by a professional
from University of San Francisco in San Francisco, CA, USA

Typically lawyers do not take equity in m&a transactions, although subject to applicable ethics rules, it may be possible to include an equity component in the legal fees. Risk share can be accomplished, however, though other arrangements, e.g. a 30% discount on the fees if the transaction does not close, matched by a 30% bonus if the transaction does close - so the lawyer shares in the risk of the transaction closing. I have seen this a number of times. Percentages could be higher or lower. Discounts and fee caps are other possible avenues, although they are not truly risk share.

Reply by a searcher
from Harvard University in 1970 Walton Dr, Burlington, WA 98233, USA

I didn't seek creative approaches to financing lawyers and accountants. In my opinion you are risking a negative selection bias when seeking advisers who will share your risk versus advisers who feel no need to do so. Additionally, for any adviser of scale, a $25,000 purchase and sales or $15,000 modified quality of earning/agreed upon procedures won't be sufficiently sizable enough for them to be excited about sharing in your upside. Not to mention the additional time and expense negotiating with your advisers rather than with your sellers.

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