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How Much are M&A Costs and Acquisition Fees During a Typical Merger?

Posted By
Emily Buchan

Mergers & Acquisitions are a great opportunity for growth for any building materials manufacturer. It brings with it a wide range of benefits, including these:

  • Achieving economies of scale through increased access to capital
  • Lowering raw materials costs as a result of the higher order volumes
  • Bringing more value to your customers as a collective than separate entities

M&As are, however, an investment in time, resources, and money—not unlike any other business growth tactic. But the key to making the most out of this process involves understanding as much about these costs as possible, and why they're important to building materials manufacturing professionals everywhere.

The Costs of Mergers & Acquisitions in Building Materials Manufacturing

Obviously, the mergers & acquisitions process isn't one that you'll be able to complete on your own. That's why one of the biggest costs you'll need to deal with comes by way of advisor and legal fees from the many professionals you'll enlist to help. This includes people like:

  • Accounting firms
  • Investment bankers
  • Real estate appraisers
  • Environmental testing professionals
  • Database analysis professionals

A lawyer, for example, could charge anywhere from $25,000 to $100,000 or even more to help you navigate through this process. It's also recommended that you hire an accounting firm to go over the financial statements of both companies, which will add another $25,000 to $75,000 to your expenses on average. Investment banking fees will also need to be accounted for, and they change depending on the situation, but as a rule of thumb you can typically expect this to come out to about 3% to 10% of the overall value of the transaction.

Depending on the nature of the deal, you may also need to hire someone to do a real estate appraisal. Environmental testing may also be necessary. If you're planning on absorbing the IT infrastructure of the company you are acquiring or merging with, you'll also need to conduct a database and general IT analysis. All of these M&A advisory fees can quickly add up, which is why you need to start preparing for them as early on in the process as possible.

What to Know About Post-Closing Adjustments

Another major M&A cost is post-closing adjustments. This involves what is called a working capital adjustment, and it happens when the working capital that the seller provided at the deal's closing doesn't actually add up with the balance sheet being prepared by the buyer.

If the actual amount of working capital turns out to be lower than the original estimate, the seller will refund the difference to the buyer. This may even involve lowering the purchase price to make up for the difference. If the working capital comes in at higher than what was originally estimated, the buyer will send the seller a check for the remaining amount.

Managing Seller Debt During an M&A

Be aware that another M&A cost involves the seller paying off the debt of their business. Unless it has been specifically called out in the contract, the buyer doesn't assume the debt of the company they are purchasing. If your building materials business is buying a company for $25 million, but they have $1 million in debt, the seller will still need to handle those obligations. 

Avoid Capital Gain Taxes

If you are the seller, you don't want to forget about capital gains taxes in your M&A costs. Depending on the nature of the deal, a cash transaction could potentially expose a seller to double taxation. Not only will your company get taxed on the profits made at the time of the sale, but you'll also pay personal income taxes when they assume control of those proceeds. This is where hiring a qualified M&A accountant becomes critical to avoiding tax related mistakes.

Breaking Down Additional M&A Costs

Additional costs of a M&A include but are not limited to:

  • Human resources management
  • Rebranding and consolidating digital assets
  • Merging technology environments

Human Resources Costs

Human resources M&A costs should be a focus, particularly because these are the ones that you don't necessarily see. If you want to be as successful as possible after the deal has closed as a seller, you need to guarantee the buy-in of both businesses' best employees. That likely means salary increases, pensions, tertiary benefits, and more. It could mean training costs, too, depending on what you need them to do moving forward.

Rebranding Costs

Of course, rebranding costs will also be a major consideration. Unless you're acquiring another business with the express intention of forming a new group of organizations, you'll need to rebrand one or even both of the companies, which comes with:

  • Updating and/or merging websites and social media profiles
  • Redesigning logos, color palettes, and other graphic elements
  • Revisiting or developing a new voice for the combined companies

A total brand overhaul can cost between $100,000 and $250,000, depending on complexity.

Cost of Merging Tech Environments

Finally, you'll need to account for all the M&A costs associated with merging two MarTech environments together, along with carrying over contracts from one business to the other. This is never as simple as letting one platform absorb the other.

You have to take into consideration the costs associated with the time necessary to audit both platforms, to implement any new technology that is necessary, and to properly train users to guarantee maximum user adoption and get the most out of this new investment.

Technology implementation projects vary depending on complexity and training needs, but generally cost between $50,000 and $250,000.

While mergers & acquisitions may not be straightforward, they are an incredible opportunity to take your building materials manufacturing business to the next level. Provided that you understand why these M&A costs are important and what value you'll get as a result of them, you'll be able to enjoy all the benefits of this process with as few of the potential downsides as possible.

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