Mergers and Acquisitions Lawyer Fees

How M&A lawyers charge: hourly, with flat fees for defined pieces

Buying or selling a company is hourly work, commonly $350 to $700 an hour for deal counsel in the lower middle market. Nobody can quote a fixed price for a negotiation the other side controls. What a competent firm can do is give you a budget by phase and tell you honestly which phase is likely to break it.

Expect a retainer. A deal engagement usually opens with a retainer of $5,000 to $15,000 that the firm bills against and asks you to top back up if the deal runs long. Some practices will defer part of a seller-side fee until closing, on the reasoning that the seller is about to be liquid.

Defined pieces are quotable flat. A mutual non-disclosure agreement, a letter of intent, a written structuring opinion, or a single-asset purchase for a small service business are predictable enough that many firms price them as flat fees. Ask for a flat quote wherever the scope is genuinely closed, and accept hourly where it is not.

The engagement letter is where all of this gets settled, so read it before you sign. Get the hourly rate of every lawyer and paralegal who will touch the file rather than just the partner you met, and ask what happens if the deal dies at diligence. An abandoned deal still generates a bill, and the fee agreement should tell you how big.

The legal fee against everything else the deal pays for

The legal fee is not the main cost of selling a company. If a broker or an investment bank runs the sale, their success fee is a percentage of the price and normally exceeds the lawyers’ bill by a wide margin. Get that percentage, and what triggers it, in writing before you sign anything — it is negotiable in a way that hourly rates mostly are not.

A quality-of-earnings review is the second large line. Any buyer of more than a small owner-operated business will want an accountant to test the target’s earnings, and sellers increasingly commission one in advance to defend the asking price. On a mid-market deal it is a real five-figure cost, and it is usually money well spent on both sides.

Tax advice is the third, and on structure it is not optional. Whether you sell assets or equity changes what you keep after tax more than almost anything your lawyer negotiates. The guide to attorney fees versus case costs explains how these third-party charges are billed and why they never appear on the legal invoice.

Then the small ones, which are not nothing in aggregate. Entity good-standing certificates, lien and judgment searches, escrow-agent charges, recording and transfer charges on any real property, and franchise or privilege charges in every state the target is registered in are all set by a state or a provider rather than by your lawyer. They also change from time to time, so ask for current amounts instead of budgeting from a number you read somewhere.

Asset purchase or equity purchase: the decision that drives the deal

This is the central legal decision in almost every private deal, and most owners arrive without knowing it exists. In an asset purchase the buyer takes named assets and assumes only named liabilities, while the selling entity survives holding the proceeds and whatever was left behind. In an equity purchase the buyer takes the shares or membership interests and gets the company whole — its assets, its contracts and every liability attached to it, known and unknown.

So buyers generally want assets. Liabilities they did not agree to assume stay behind with the seller, and the price is allocated across the assets acquired, giving the buyer a stepped-up tax basis and future depreciation. That step-up is often worth real money, which is why a buyer will sometimes pay more for an asset deal than an equity one.

Sellers generally want equity. One transfer document ends the owner’s involvement completely, the proceeds are usually taxed as capital gain on the sale of an interest rather than partly as ordinary income, and there is no leftover shell to wind up. An asset sale out of a C corporation can be taxed at the company and again on the distribution, which is why the structure argument is really a tax argument.

The compromise is almost always price. A seller pushed into an asset deal asks to be paid for the tax cost of it, and a buyer pushed into an equity deal asks for a larger indemnity and a larger escrow. Put a lawyer and an accountant on the structure question together before the letter of intent fixes it, because reopening it later costs goodwill as well as fees.

The letter of intent: mostly non-binding, except exclusivity and confidentiality

A letter of intent or term sheet sets out price, structure and the shape of the deal, and it normally says in terms that it does not bind either side. Two provisions usually do bind: confidentiality, and exclusivity — the no-shop that stops the seller talking to anyone else for a defined period. Those two are enforceable while the commercial terms are not, and that asymmetry catches sellers out.

Exclusivity is the provision to negotiate hardest. A long no-shop hands the buyer time to find reasons to retrade the price while the seller has no alternative left to fall back on. Thirty to sixty days with a hard end date is a reasonable ask; an open-ended period, or one the buyer can extend unilaterally, is not.

Time spent at this stage is the cheapest time in the deal. Settling the structure, the working capital target, the size of the escrow and the shape of the indemnity in a term sheet costs a few hours of drafting. Discovering those same disagreements after diligence, with a purchase agreement already on the table, costs weeks of hourly work and sometimes the deal itself.

So resist the instinct to sign a short letter quickly to keep momentum. A letter that names the structure, how debt and cash are treated at closing, the earnout mechanics if there is one, and the indemnity cap takes longer to negotiate and is far cheaper overall. It also tells you something useful about whether the other side is serious.

Due diligence: where the hours go, and how a seller cuts them

Diligence is the largest single block of legal time in most deals, and the seller largely decides how large it is. The buyer’s lawyers read the corporate records, the material contracts, the leases, the employment and contractor agreements, the intellectual property chain of title, the insurance, the litigation and the licences. Every gap found generates a question, then a disclosure schedule entry, then usually a provision in the purchase agreement.

What makes diligence expensive is disorder rather than size. A company with a complete minute book — the product of ordinary corporate housekeeping — documented share issuances, signed contracts and written invention assignments from everyone who built anything costs a fraction of what a company with none of that costs to sell. The work is the same either way; the difference is how much has to be reconstructed under time pressure.

Three gaps recur, and each can cost more in price adjustment than in legal fees. The first two are key customer contracts that were never signed or that terminate on a change of control, and code or designs built by a contractor who never assigned the intellectual property to the company. The third is equity promised informally to an early employee who now has something that looks like a claim.

Sellers should run diligence on themselves first. A pre-sale legal audit — clean up the records, chase the missing signatures, confirm the cap table, paper the IP assignments — is calm, cheap hourly work when it happens months before a buyer is looking. It is also the only version of this work that does not happen while somebody else holds a no-shop over you.

Reps and warranties, the indemnity cap, and the price after closing

Representations and warranties are the seller’s statements about the business: that the financials are accurate, the contracts are valid, the taxes are paid, nobody is suing. They are the mechanism by which the price gets adjusted if any of that turns out to be wrong. Negotiating them, together with the disclosure schedules that qualify them, is where most of the drafting budget actually goes.

The indemnity is the money standing behind them, and it is mostly a set of numbers. A cap limits the seller’s total exposure, often expressed as a percentage of the price; a basket or deductible means small claims do not count until they accumulate past a threshold; and survival periods set how long each representation stays alive. Fundamental and tax representations usually survive longer and are capped higher, sometimes at the full purchase price.

An escrow or holdback is how a buyer makes that indemnity collectable. Part of the price sits with a third party for a defined period and is released if no claim lands. Representation and warranty insurance has pushed down into the mid-market and can shrink or replace the escrow, which is worth pricing on any deal where the seller wants a genuinely clean exit.

Two mechanics generate most post-closing disputes, and both are about price rather than misconduct. The working capital adjustment compares delivered working capital against an agreed target and trues the price up or down, so the target and the accounting method have to be defined precisely. The earnout is worse, because the buyer now runs the business whose results decide the seller’s payment — a disputed earnout is business litigation, billed as such.

Why your state matters: entity law, seller non-competes, and consents

The deal is a contract, but the entity rules around it are state law. How a sale is approved, what vote a minority owner can block it with, whether a dissenting holder can demand appraisal, and whether a buyer of assets can be pursued for the seller’s debts under successor-liability doctrine are all set by state law.

Delaware is where a large share of target companies are organised, and the reason is practical: the approval mechanics and appraisal rights are well mapped, which makes a deal faster and cheaper to paper. California matters for a different reason entirely. It voids most employee non-compete agreements, yet still permits a non-compete given by someone selling the goodwill of a business or substantially all of their ownership interest.

That carve-out is worth knowing if you are buying in a state with a ban. A buyer paying for goodwill needs the seller not to reopen across the street, and readers in those states often assume the covenant is simply unavailable. It generally is available — but the wording has to fit the exception, so have it drafted locally and compare the employee-side rules on the non-compete page.

New York applies a reasonableness test to both kinds of covenant and gives a seller’s more room than an employee’s. Bulk-sale notice rules, licence transfers, transfer and recording charges, and franchise or privilege taxes vary by state and change from time to time, so ask for current amounts. Deal counsel is sometimes hired out of market, and that can be the right call — but consents, entity approvals and the seller covenant are local work.

Choosing M&A counsel and keeping the fee down

Firstly, hire someone who closes deals of your size rather than the biggest name you can reach. A lawyer who does three or four lower-middle-market transactions a year has the forms, knows what is market on a cap and a basket, and will not relitigate settled points at your expense. Many will discuss structure in a free consultation before you engage anyone.

Secondly, settle the structure and the economics in the letter of intent. Price, the asset-or-equity question, the working capital target, the escrow and the indemnity cap are all cheap to agree in a term sheet and expensive to agree in a purchase agreement. That one discipline saves more money than any rate negotiation will.

Thirdly, do your own housekeeping before anyone asks. Assemble the corporate records, contracts, leases, cap table and IP assignments into a data room, and fix what is missing while nobody is waiting on you. Paying your lawyer to answer the same diligence request twice is the most avoidable cost in the whole process.

Finally, control the process rather than the rate. Agree a phase budget with a check-in before the purchase agreement is drafted, insist on one point of contact so three lawyers are not reading the same lease, and keep counsel out of commercial haggling they cannot win for you. If the deal is genuinely small and simple, a contract review of a short asset purchase agreement may be enough — but understand that is the cheap version, not the safe one.