Terms for consulting to PE firm

June 07, 2021

by a searcher from Stanford University - Graduate School of Business in San Jose, CA, USA

A PE firm approached me to assist them on a deal they're evaluating which is in an industry I have expertise in.
They are considering investing in a firm that is doing a roll up but would like someone independent of management to "help them on this". They would like me to propose how I can help. I don't really understand what they're asking me to do or what I terms I should propose.

Are there standard terms for an engagement like this? Should I ask for cash or equity or a bit of both?

Practically, how I could add value would be:
1) Researching the industry - growth/fragmentation/availability of suitable targets
2) Multiples and availability of senior and Mezz.
3) Deal sourcing strategy
If they decide to go ahead, I feel I could add value in deal sourcing/closing.

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Reply by a searcher
from Harvard University in New York, NY, USA

I've interacted with industry executives from the PE firm perspective. To help out on diligence, there are typically three ways to do it once you get alignment on how specifically you will help them with diligence, whether it's writing a market report, just answering questions, interviewing the mgmt team, etc: (a) bill them for an hourly rate of $100-$200 and provide an estimate for number of hours, (b) charge a small retainer upfront and a contingent success fee based on deal value if they do the deal, and (c) charge a retainer upfront, with a stage-gate in###-###-#### weeks where they decide if they want to continue engaging you, and if so, charge another retainer. In my experience, (b) is the most common but it does not align incentives well (you are basically incented to advise them to do the deal). (c) should be quite attractive for them due to alignment, and for you as it's less risky. Hope it's helpful Daniel.

Reply by a professional
from Bentley College in Miami, FL, USA

There isn't a set way to structure these types of engagements. If you're bringing them deal flow then you can ask for a finders fee or a success fee. If you're just helping them do due diligence or market research then you can propose an hourly rate for your consulting services. If you're going to be part of the operating team then of course there are other considerations. I know this isn't a great answer but it's a very open ended question.

On a similar topic - I am the founder of DueDilio which is a service that connects business buyers and investors with due diligence experts. Perhaps you're interested in joining as an expert? I'm sure there are others who may be looking for expertise in your field. https://www.duedilio.com

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