03 May Understanding Fee Tail provisions in M&A Contracts
We’ve talked a bit about what to expect for fees when evaluating M&A vendors – you can check out previous podcasts and blogs on the topic on our website at RevenueRocket.com.
Today we want to dig into a provision you’ll find in nearly all M&A related contracts – a tail for a transaction after an agreement comes to an end.
But Before we jump into the specifics of tail related provisions, there are a few things you should know about how the M&A business operates
Types of M&A contracts
How M&A advisors are compensated
- Deal preparation/retainer
- Success fee
What is a tail?
A tail is a provision in an M&A contract that requires the seller to pay a former advisor, typically an investment banker, for a specified period of time after the closing of the transaction. The purpose of the tail is to incentivize the advisor to continue to work on the deal and ensure its successful completion.
How long does a tail typically last?
Tails typically last for one to two years after the closing of the transaction.
Who is typically eligible for a tail?
Investment bankers who have worked on the deal are typically eligible for a tail. In some cases, other advisors, such as lawyers or accountants, may also be eligible.
What are the benefits of a tail?
Tails provide an incentive for advisors to continue working on a deal after it has been completed, which can help to ensure its success. Tails also allow advisors to share in the upside of a successful transaction.