Adding Success Fees to Starting the Exit Planning Conversation Reviewed by Momizat on . NACVA/CTI BVFLS Conference Presentation Summary This article is a review of a session involving exit planning that was covered in a highly interactive, standing NACVA/CTI BVFLS Conference Presentation Summary This article is a review of a session involving exit planning that was covered in a highly interactive, standing Rating: 0
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Adding Success Fees to Starting the Exit Planning Conversation

NACVA/CTI BVFLS Conference Presentation Summary

This article is a review of a session involving exit planning that was covered in a highly interactive, standing-room-only session from the NACVA/CTI BVFLS Conference in Fort Lauderdale, FL on December 14, 2023.

Adding Success Fees to Starting the Exit Planning Conversation: NACVA/CTI BVFLS Conference Presentation Summary

This article is a review of the topics covered in the highly interactive, standing-room-only session from the NACVA/CTI BVFLS Conference in Fort Lauderdale, FL this past December 14, 2023.

John Leonetti and Erin O’Leary from the International Exit Planning Association were invited to speak at the December NACVA/CTI BVFLS Conference. The topic of the presentation was ‘From Success Fees to Starting the Exit Planning Conversation’. By design, the topic was broadly constructed and achieved the objective of being a highly interactive discussion about how NACVA members can successfully add exit planning, business sales, and earning success-fess into their practices.

As we told the audience with our opening comments, “We have 100 minutes to share as much as we can about this topic; let’s make it interactive and engaging. We have a full room and I want to answer your questions so that this is as valuable as possible”. The conversation started with a ‘show of hands’ for how many in the audience actively participated in exit and sale transactions; many hands went up. We then took audience questions as we covered the main topics. Many in attendance want to assist, at a deeper level, with selling their clients’ companies. Others wanted to know how to participate in the sale process and the success fees that are paid when a company sells. We summarize the main points of the presentation below.

Licensure Change after 89 Years: Securities Licenses for Business Sale Transactions are No Longer Required at a Federal Level

The Securities Exchange Act of 1934 had stood as the ‘law of the land’ for more than 89 years. It said, essentially, that business ownership interests (i.e., privately-held companies) are ‘securities’ and, when an intermediary sells a business/security, the law that applies required securities licenses. Having securities licenses also included registering yourself with a broker-dealer (B-D). The B-D oversees the activities of its registered representatives with mandatory activities such as continuing education requirements, compliance oversight, archiving e-mails, reviewing written materials that represent the business to the market, and creating deal files, all while paying fees for FINRA and the B-D to oversee those activities. In addition to the ongoing ‘seat fees’, a portion of all success fees being earned are collected by the B-D for this oversight. To say that being securities licensed is expensive and inconvenient is an understatement. Moreover, many advisors did not see the utility in being compliant with these laws for the occasional business owner who may or may not hire them to sell their business. Therefore, the professionals who believe in being compliant with the law were largely not participating in sale transactions and success fees because of these barriers.

The exemptive relief that now provides an exemption for those who sell privately-held businesses opens up (after nearly 90 years) the opportunity for non-investment banking professionals to more actively participate without having to comply with these onerous licensure requirements (at the federal level*).

*Note that while the federal exemptive relief is a significant development, there are still state laws and other factors to consider. This factor should be considered as professionals seek to make exit planning and transactions a larger part of their practice, and everyone should seek legal advice on this matter.

Options for Advisors: Should You ‘Self-Perform’ or Partner for Fee-Sharing

The next significant discussion point related to whether practitioners want to/should do the sale transaction work themselves or partner with merger and acquisitions practitioners. Under a partnership/collaboration scenario, there is the opportunity to introduce the topic to business owner clients and then refer in the more experienced (and likely better staffed and supported) M&A advisor. In these cases, the exemptive relief now breaks down a significant barrier to sharing fees with the M&A practitioner because, when an M&A practitioner is under the compliance and regulatory oversight of FINRA and the SEC, sharing fees that go through the B-D are (generally speaking) not allowed with parties that do not hold securities licenses. Now that the M&A advisor does not need a license for many sell-side activities, these fees can more easily be shared like any other consulting fee that is collected from a client. Note that although a business sale is still technically categorized as a ‘sale of a security’, the exemptive relief no longer requires that the intermediary flow the transaction fee through the B-D, which is where many fee-sharing restrictions exist.

Let’s look at an example. Let’s assume that a business sale occurs, and a success fee is paid to the intermediary for a purchase price of $20mm at 4% rate, or an $800,000 gross fee. If a securities licensed practitioner collected that fee and that fee went through the B-D, then the first money that is taken from that fee is a percentage that the B-D takes. If we assume a 5% B-D fee, that is $40,000, leaving $760,000. The licensed individual is sent a wire transfer for the $760,000 as a registered representative of that B-D. And, as such, that fee is not supposed to be shared with any other individuals that do not hold securities licenses. With the change in the law, that fee can now be captured by any advisor that does the work. And not only is the B-D not getting the $40,000 ‘processing fee’, but a percentage of that fee; typically in a range of 10% to 20% of the gross fee (or more if the referring advisor is actively participating) can be paid by the M&A advisor to the person (or firm) that referred the transaction to them. In this instance, there is a fee-sharing opportunity in the range of $80,000 to $160,000 available to the referring advisor for making the referral and having the M&A advisor do the work (and assume the risk associated with that engagement). Again, if the M&A advisor is not constrained by licensure and B-D restrictions, it becomes seamless to now share the fees.

The Risk-Return of Self-Performing Business Sale Work

Once we covered licensure and fees available, the conversation quickly turned to, “What is involved with the sale of a privately-held business?” Many in the audience asked about self-performing the work, including what is needed to get a company sold. We actively discussed the details of self-performing to receive the full $800,000 fee, instead of just a referral fee percentage. Topics discussed are below:

  • Time: Business sale transactions can take up to 1,000 hours to complete (sometime more); resources and staff are needed in many cases to do the work the right way.
  • Infrastructure is needed to execute on all of the steps in the selling process, including:
    • Client engagement, scoping, and pricing the work
    • Identifying and positioning the company in the market properly
    • Placing a range of values on the business (that the owner agrees with)
    • Building the marketing materials; researching the marketplace
    • Distributing the deal to the market; finding and contacting buyers
    • Answering potential investors’ questions
    • Collecting and evaluating initial offers and running management presentations
    • Negotiating a letter of intent
    • Setting up data-rooms and preparing for diligence
    • Participating in negotiations of definitive agreements
    • Building a transaction team of advisors
    • Closing a transaction; handling buyer objections along the way
    • Managing the client’s emotions and reactions as the deal proceeds

All the considerations above also include the practitioner moving from an hourly-billing model to a success-fee/risk sharing model. In other words, when deals do not close, there can be significant (paper) losses and opportunity costs that arise from running the sell-side process, and committing resources towards those efforts. Note: during the session, we also actively discussed a variety of reasons that deals do not close; too many to review in this recap. However, the financial risks are real because, for a whole variety of reasons, many transactions do not successfully complete and the losses belong to the intermediary doing the work.

Risk and Indemnification: Beyond the time and tasks associated with selling businesses, there are also the risks, including disputes and litigation can follow these deals where the advisor can be drawn into those disagreements since the advisor ‘represented the company’ to the buyer. We touched on several points here, including indemnification details that often-times go in the engagement letter.

Getting Started with an Exit Planning Conversation

By this point in the session, we were highly engaged in the success fee discussion. However, what the audience also wanted to hear about was how to get the exit planning conversation started and understanding the role of exit planning prior to the attempted sale of business. Adding exit planning to your practice enables you to engage with business owners on this important topic and assume and expand your role of the trusted advisor. There are a great number of considerations that you, the advisor, can address with an owner long before the selling process occurs.

Exit planning does not always immediately lead to a business sale transaction. Some exit planning engagements lead to value-growth where the owner wants to/needs to increase the value before selling. Some exit planning engagements lead to personal planning to prepare for a future sale or business transfer. And, of course, some exit planning engagements lead to the sale of the company right away. By taking an exit planning approach and having these conversations with business owners, you can remain objective to the owners’ goals; you do not have to have the owner sell the company to get paid. Exit planning fees can be significant as you work with the owner to prepare them and the business for a future transaction.

There are many owner goals and many ways to get paid for this work. The reality is that when you ‘own’ the exit planning conversation, your business owner will often-times look to you to take the lead in the execution of priorities that the owner chooses from the planning process. And often-times, the execution that the owner chooses is a sale of their business. At that point in time, when you have developed or expanded your relationship with the business owner on this topic, you can decide how you want to participate in the sale process. Moreover, having an exit planning conversation is often-times more powerful than discussing a business sale transaction with the business owner because there is greater alignment with the owners’ holistic goals, not just the sale transaction.

Closing Thoughts

With Baby Boomers aging into retirement, they will need more and more help with this special practice area. For advisors who are looking to increase the percentage of overall firm revenue more in the direction of advisory work, exit planning is a great way to leverage those trusted relationships. And, whether the owner decides to sell or simply wants to prepare for a future sale, your practice benefits.


The International Exit Planning Association offers training, certification, and support for advisors looking to do this work. The Certified Business Exit Consultant designation is offered four times a year and is a great way to get started. For more information on exit planning and our firm, reach out to us at the contact information below.

John Leonetti, JD, MS, is founder of the International Exit Planning Association (IEPA). Over the past few decades, he has advised hundreds of midsized firms on exit-related issues and is the author of Exiting Your Business, Protecting Your Wealth – A Strategic Guide for Owners and Their Advisors (2008, Wiley & Sons, original publisher). The book is considered by many the leading resource for owner exits. The six-step process within the book is the foundation for the proven process that is the cornerstone of our training methodology.

Merging his formal training in law and finance with real-world exposure, Mr. Leonetti has pioneered curricula, tools, and support mechanisms for professional advisors over the last 30 years. His journey, dotted with diverse professional experiences, from family businesses to M&A firms, planning, to business sale transactions, and even academia, culminated in the birth of the IEPA.

Mr. Leonetti may be contacted at (781) 821-2608 or by e-mail to john@theiepa.com.

Erin O’Leary, MBA, CM&AA, is an investment banker and member of the International Exit Planning Association.

Ms. O’Leary may be contacted at (781) 821-2608 or by e-mail to erin@theiepa.com.

The National Association of Certified Valuators and Analysts (NACVA) supports the users of business and intangible asset valuation services and financial forensic services, including damages determinations of all kinds and fraud detection and prevention, by training and certifying financial professionals in these disciplines.

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