The Hidden Cost of Saving on M&A Fees, According to Nick Bradley

In a recent LinkedIn post, Nick Bradley discusses a common pitfall for founders: prioritizing small savings on M&A advisor fees over potentially larger financial gains and risks. Bradley highlights a scenario where a founder’s focus on reducing advisory costs may have overshadowed more critical aspects of their business’s growth and financial health.

The Founder’s Dilemma: Saving on Fees vs. Maximizing Value

Bradley opens his post with a provocative statement that immediately frames the discussion around perceived value and risk in financial advisory services:

“Nobody ever lost four million dollars by overpaying their advisor.”

This stark observation, according to Bradley, points to a psychological bias where the fear of a large, tangible loss (overpaying) can overshadow the less immediate, but potentially far greater, risk of missing out on significant gains. He contrasts this with a founder’s experience:

“However, I do know a founder who built a twenty-million-dollar business and saved thirty thousand dollars on his M&A fee. He then negotiated the rate down from two percent to one and a half.”

According to Bradley, this founder’s mindset was one of ‘winning’ by securing a lower fee. While the savings were real, Bradley implies that this focus might have diverted attention from the core objectives of the M&A process itself – maximizing the business’s valuation and ensuring a smooth transaction.

The True Cost of a Discounted Advisor

Questioning the ‘Win’

Bradley suggests that the perceived victory of saving $30,000 on fees might be a false economy. As he notes, the founder felt triumphant:

“He felt like he’d won the grand prize, and got on with running his business while the process ticked along in the background”

In Bradley’s view, this sentiment reveals a critical misunderstanding of the M&A advisor’s role. The advisor’s value isn’t just in the percentage they take, but in their expertise to navigate complex negotiations, identify potential risks, and ultimately, drive a higher valuation or secure better terms. By focusing on the fee reduction, the founder may have inadvertently engaged an advisor less incentivized or equipped to fight for the remaining $20 million of the business’s value, or to protect against the $4 million losses Bradley alluded to earlier.

Prioritizing Expertise Over Expense

Bradley’s analysis implies that founders should shift their perspective from viewing M&A advisors as a cost center to recognizing them as strategic partners. The true measure of an advisor’s worth lies not in the lowest fee, but in their ability to generate a return that far exceeds their compensation and the risks they mitigate. Overpaying for top-tier expertise, in this context, can be a far more prudent financial decision than saving on fees at the expense of optimal deal outcomes.