Guide
The tail in an M&A engagement letter: what it costs you later
Updated
The tail is the clause sellers read last and regret first. It is also the one clause where a small drafting change is worth six figures.
What a tail does
A tail (also called a trailer or run-off) provides that if the business is sold after the engagement ends, to a party the advisor introduced or dealt with during the mandate, the fee is still payable. It exists for a reasonable reason: without it a seller could terminate the mandate the week after meeting the eventual buyer and keep the introduction for free.
The three limits worth insisting on
- A defined list, not a category. The tail should attach to a written schedule of named parties actually introduced or contacted, delivered at termination. A tail covering any buyer in the sector is not an introduction fee, it is a tax on selling.
- A finite period. Tails are drafted in months or years after termination. Whatever the number, make sure there is one and that it runs from termination, not from completion of some later event.
- One fee, not two. If you appoint a new advisor and the old tail bites, you can end up paying twice on the same deal. Say expressly what happens: a reduced tail fee, or an obligation on the outgoing advisor to co-operate on handover.
How tails interact with the fee scale
A tail fee is normally calculated on the same scale as the completion fee, so the numbers in the calculator and the fee table apply unchanged. Retainers already paid are the exception: check whether the credit survives termination. Where it does not, a mandate that ends and then completes on the tail costs you the retainers on top of the full scale fee.
There is no standard tail length and no published figure for one. Terms are negotiated between commercial parties and vary widely, so treat any range you see quoted elsewhere as an estimate and read your own clause. Have the letter reviewed by a corporate solicitor before signature.