Success Fee
What is Success Fee?
A Success Fee is a contingent payment made to a financial advisor, investment banker, consultant, or intermediary only if a transaction is successfully completed. It is a performance-based reward that aligns the advisor’s interests with the client’s goal—typically in mergers & acquisitions (M&A), fundraising, or restructuring deals.
How it Works?
When a company hires a financial advisor or investment bank, the engagement agreement may include:
- A retainer fee: Paid upfront or on a fixed schedule.
- A success fee: Paid only if the deal closes.
For example, in an M&A deal, the advisor earns a success fee if the sale is finalized. No deal = no success fee.
Where it is used?
- Mergers & Acquisitions (M&A): Success fee is linked to deal size or value.
- Fundraising (VC/PE): Intermediaries earn a fee when funds are raised.
- Debt syndication: Fee is paid after successful disbursement of a loan.
- Restructuring/Turnarounds: Fee is paid if certain financial goals are achieved.
Advantages
- Performance-linked: Ensures the advisor is motivated to close the deal.
- Lower upfront costs: Clients can avoid high initial payments.
- Aligned incentives: Encourages the advisor to seek the best possible outcome.
Typical Fee Structure
Success fees can be:
- A percentage of the deal value (e.g., 1–3% of transaction size)
- Tiered, where the percentage increases with deal size
- Sometimes capped or negotiated based on complexity
Example
For a ₹100 crore M&A deal, an advisor may receive a 2% success fee = ₹2 crore.
In the Indian Context
In India, success fees are commonly seen in:
- Investment banking mandates
- Startup fundraising
- Insolvency & Bankruptcy Code (IBC) resolution processes
Advisors and Resolution Professionals may receive a success fee upon achieving debt recovery or sale of assets.