Guide
M&A retainers: credited, uncredited, and what each means
Updated
Almost every sell-side mandate carries a monthly work fee, and sellers argue about its size when they should be arguing about a single word in the clause beneath it. Whether the retainer is credited against the success fee is worth more than its monthly amount.
Talk to a specialist Lehman and Double Lehman at your deal size, with the minimum fee, the retainer credit and the tail that decide what you actually pay.
The two structures
A credited retainer is an advance. You pay it monthly and the total is deducted from the completion fee, so on a deal that closes it costs nothing beyond the timing of the cash. An uncredited retainer is additional revenue for the advisor and is added to whatever the scale produces.
Run both through the calculator on this page with the same monthly figure and the same mandate length. The gap between the two totals is exactly the retainer, and on a twelve month mandate at $10,000 a month that is $120,000 of difference decided by one clause.
Why advisors want a retainer at all
Because a pure success fee makes the advisor a lottery ticket holder, and lottery ticket holders behave badly. A firm with no committed revenue is incentivised to take every mandate and work the ones most likely to close, which may not be yours.
A retainer is therefore a reasonable thing to pay and a reasonable thing to want. The question is not whether to pay one but whether it is credited, and a firm confident in its own process is usually comfortable crediting it.
The mandate length nobody negotiates
Retainers run for the mandate, so a twelve month exclusive at $10,000 a month is a $120,000 commitment before a single buyer is approached. If the process stalls at month four because the market turned, you are still paying.
Ask for a break clause, or for the retainer to step down after a defined period, or for it to stop if no indication of interest has arrived by a named date. All three are ordinary requests and none of them is unreasonable to a firm that expects to deliver.
What a retainer should buy
Specific deliverables with dates: the information memorandum, the buyer list, the financial model, the data room build. A retainer paying for effort rather than output is difficult to hold anyone to.
Write those into the engagement letter. It is the only document that will exist when the relationship is under strain, and the SBA's guidance on sale agreements makes the same point about terms generally: note the adjustments, the broker fees and everything else relevant, rather than relying on an understanding.