Investment banks have many varied types of possible engagement agreement structures for business owners. But many investment banks do a poor job of aligning their client’s interest in selling their companies with the interest of the investment bank representing them in sale. At the Douglas Group, we have taken our over 25 years of experience and made the perfect engagement agreement. We make sure that our goals as an intermediary are aligned directly with the goals of the seller, to get the best possible pricing and terms for the sale transaction.
Douglas Group uses a tiered structure that increases our fee when we get more for the client. Douglas gets a low percentage of the deal for the low dollar amounts and the Douglas fee percent increases with the higher dollar amounts of offers. Douglas must fully understand your company’s potential value to create what we call a MASP (Minimum Acceptable Sales Price). The MASP is a conservative estimate of the company’s value, purely between the owner and Douglas, for the owner’s consideration in advance of sale. The MASP impacts our fee structure, with a minimum low percentage to the MASP level, and a greater percentage above that. For example, we may charge 3% up to the MASP, 5% from the MASP to maybe 10- 20% over the MASP, and 10% on amounts above that. Thus, we only make the “big bucks” if we come through big for our seller client. As a result, our natural incentive is always to work hard to maximize price.
It takes a lot of work from Douglas Group to come up with a MASP, but the work is well worth it for both the seller and Douglas Group. The benefits of advance discussion of minimum pricing expectations go beyond creating a shared interest in achieving and closing the deal at the highest dollar amount. The MASP also ensures that the seller knows something generally realistic about what to expect. Buyers know that Douglas Group transactions virtually always close. Our reputation is solid in the industry because buyers know that we do not take on a seller that isn’t serious and generally realistic about selling their business. Today’s private equity groups and strategic buyers can see thousands of deals a year and only want to put time into sellers that they know are serious. Thus, the Douglas reputation for successful closing causes more serious buyers to approach.
Another vital piece of the Douglas Group engagement is our engagement retainer fee that Douglas Group charges monthly to our sellers. This is another sign that our seller is serious about sale. Since we charge it monthly, it adds incentive to the seller to get moving quickly. Speed becomes imperative in deals to maximize value. Sellers are quicker to respond and pull together the financials and the answers required when they have some skin in the game. We do understand that most sellers are extremely busy, and we do our best to reduce the time the seller will need to put in to sell their business – however to ensure success, it is crucial for the seller to act quickly.
Douglas has achieved a success rate in bringing companies to market and successfully selling them over 95% of the time. This success rate is outstanding for our industry. As a result, we can be picky about the sellers we choose to represent. Also as a result, we can help our clients to achieve their goals and progress to the next stages of their lives. It pays for owners to make sure their investment banker’s incentives match theirs, to achieve the best possible outcome.