What a Sell-Side Advisor Actually Does in a Mid-Market Deal
Founders evaluating whether to engage a sell-side advisor often struggle to understand what they are actually paying for. The advisory fee represents a significant cost, typically several hundred thousand dollars or more in mid-market transactions. Knowing that an advisor will help sell the business is not the same as understanding the specific activities that justify that investment.
This article provides a transparent explanation of what sell-side advisors do at each phase of a transaction, where they create measurable value, and how their compensation aligns with founder interests. The goal is to help founders make informed decisions about whether advisory engagement makes sense for their specific situation.
The core value proposition is straightforward: advisors create competitive dynamics that drive substantially higher prices than founders could achieve on their own. The secondary value comes from navigating deal mechanics that most founders encounter for the first time during their own transaction. Together, these capabilities typically generate returns that far exceed the advisory fee.
The Core Value Proposition
The single largest source of advisor value is the competitive sales process. Research from Focus Bankers demonstrates that a competitive sales process can result in 50 to 100 per cent increases in offers compared to proprietary sales.
This finding deserves emphasis. A founder who responds to inbound interest and negotiates with a single buyer might achieve a $20 million outcome. The same founder, with the same business, running a competitive process through an experienced advisor, might achieve $30 million to $40 million. The business has not changed. The difference is entirely process.
Creating competitive dynamics requires capabilities that most founders lack. Advisors maintain relationships with strategic acquirers and private equity firms across relevant sectors. They know who is actively looking for acquisitions, what they prioritise in targets, and how to position opportunities to match buyer priorities. They can run parallel conversations with multiple parties, creating timing pressure that prevents any single buyer from controlling the process.
A founder attempting to replicate this approach faces structural disadvantages. Cold outreach to potential acquirers rarely generates meaningful engagement. Running parallel negotiations while also operating the business creates unsustainable demands on attention. The absence of credible alternatives weakens negotiating leverage at every turn.
The 50 to 100 per cent uplift is not guaranteed in every transaction. But even a 20 per cent improvement over what a founder could achieve alone represents substantial value relative to a 3 to 5 per cent advisory fee. The economics strongly favour professional representation for any transaction of meaningful size.
Phase 1: Preparation
Before approaching the market, advisors invest significant time in preparation that positions the business for optimal valuation.
Financial analysis and EBITDA normalisation form the foundation. Advisors review historical financials to identify one-time expenses, owner-specific costs, and accounting choices that distort the business's true earnings power. The normalised EBITDA calculation, which adds back non-recurring items and owner adjustments to reported earnings, becomes the basis for valuation discussions with buyers. Getting this right matters because every dollar of EBITDA typically translates to multiple dollars of enterprise value.
Market positioning develops the narrative that will shape buyer perceptions. Advisors help founders articulate the investment thesis: why this business is attractive, what growth opportunities exist, how it differentiates from competitors, and why now is the right time for acquisition. This narrative, supported by data and presented professionally, determines whether buyers see a premium asset or a commodity.
Materials creation produces the documents that buyers will evaluate. The confidential information memorandum presents the business comprehensively, covering market position, financial performance, growth strategy, and transaction rationale. The teaser document provides enough information to gauge interest without revealing confidential details. The management presentation prepares founders for buyer meetings. Each document requires careful crafting to present information accurately while highlighting strengths and addressing potential concerns.
The data room organises due diligence materials in advance of buyer requests. Preparing contracts, financial statements, customer data, employee information, and other materials before the process begins prevents delays during diligence and signals operational maturity to buyers. Advisors know what buyers will ask for and ensure the information is ready when needed.
Phase 2: Market Approach
With preparation complete, advisors execute the market approach that creates competitive dynamics.
Buyer identification develops the target list. Advisors analyse the market to identify strategic acquirers in adjacent spaces, private equity firms focused on the relevant sector, and other potential buyers with strategic rationale for the acquisition. The list typically includes dozens of potential parties, far more than any founder could realistically approach on their own.
Initial outreach gauges interest without revealing confidential information. Advisors contact potential buyers, present the teaser document, and assess whether genuine interest exists. This filtering process separates serious buyers from those who are merely curious or fishing for competitive intelligence. Founders benefit from having an intermediary manage these initial conversations, preserving confidentiality and maintaining negotiating flexibility.
Qualification ensures that only credible buyers proceed to detailed discussions. Advisors verify that interested parties have the financial capacity to close, the strategic rationale for the acquisition, and the decision-making authority to proceed. Engaging with unqualified buyers wastes time and can compromise the process if they drop out at critical moments.
Process management maintains competitive tension throughout. Advisors coordinate timing so multiple buyers progress through the process in parallel. Each buyer knows that others are interested, creating pressure to offer compelling terms. The advisor manages information flow, answers buyer questions, and ensures no single party gains advantage through extended access or exclusive negotiation.
Phase 3: Deal Management
As interested buyers submit indications of interest and letters of intent, advisors shift focus to deal management.
LOI negotiation is where many of the most important terms are established. While letters of intent are typically non-binding on price, they set expectations that frame all subsequent negotiation. Advisors who have reviewed hundreds of LOIs know which terms are standard, which represent overreach, and where to focus negotiating effort. They can push back on aggressive buyer positions with credibility that founders lack.
Due diligence coordination manages the information exchange that follows LOI signing. Buyers submit extensive information requests. Advisors organise responses, manage data room access, track outstanding items, and ensure the process moves forward without unnecessary delays. They anticipate questions before they arise and prepare founders for management presentations that can significantly influence buyer conviction.
Purchase agreement negotiation covers the detailed legal terms that govern the transaction. While lawyers handle the drafting, advisors provide commercial perspective on terms that affect economics. Representations and warranties, indemnification provisions, escrow arrangements, and basket and cap structures all affect what the seller actually receives. Advisors ensure that legal negotiations reflect commercial understanding rather than drifting toward overly aggressive positions.
Closing coordination manages the final steps from signed agreement to completed transaction. Wire instructions, closing certificates, third-party consents, and transition arrangements all require coordination across multiple parties. Advisors serve as the central point of contact, ensuring nothing falls through the cracks in the final push to closing.
The Mechanics Most Founders Miss
Beyond process management, advisors provide value through expertise in deal mechanics that most founders encounter for the first time during their own transaction.
Working capital adjustments affect nearly every deal. SRS Acquiom analysis shows that working capital purchase price adjustments are now virtually ubiquitous, present on more than 90 per cent of private target M&A deals. The average adjustment owed to buyers is roughly 0.9 per cent of transaction value.
In a $50 million transaction, that 0.9 per cent average represents $450,000 flowing from seller to buyer at closing. This is not negotiation; it is mechanics. The working capital target is established in the purchase agreement, actual working capital is measured at closing, and the difference adjusts the purchase price automatically. Founders who do not understand working capital often set inappropriate targets, accept unfavourable calculation methodologies, or fail to anticipate how buyers will interpret ambiguous definitions.
Earnout structures require careful evaluation. The same SRS Acquiom analysis shows that earnouts pay approximately 21 cents per dollar across all deals. A $10 million earnout component is realistically worth $2 million in expected value, not $10 million. Advisors help founders evaluate earnout proposals against these benchmarks, negotiate achievable metrics, and understand the realistic value of contingent consideration.
These mechanical elements can transfer significant value from seller to buyer if not properly managed. Advisors who have navigated these mechanics across many transactions protect value that founders would otherwise unknowingly surrender.
Fee Structures and Alignment
Understanding how advisors are compensated helps founders evaluate whether interests are aligned and whether the economics make sense.
Industry data from fee surveys shows that many mid-market M&A deals in the $10 million to $30 million EBITDA range land within the 3 to 5 per cent success fee zone. This percentage, while significant in absolute terms, is modest relative to the value creation that competitive processes deliver.
The most common structure, used by 44 per cent of surveyed firms in 2024, is the Lehman formula. This declining percentage scale starts at 5 per cent of the first $1 million in transaction value and declines through higher tranches, creating a tiered fee that decreases as a percentage of larger transactions.
The accelerator formula is gaining traction, used by 20 per cent of firms in 2024, up from 16 per cent in 2023. Under this structure, the success fee percentage increases if the transaction exceeds certain valuation thresholds. An advisor might earn 4 per cent on enterprise value up to $50 million but 6 per cent on amounts above that threshold. This structure creates powerful alignment between advisor and seller interests around maximising price.
Monthly retainers typically remain in the $5,000 to $10,000 range. These payments cover the advisor's investment in preparation, buyer outreach, and marketing materials. They also signal founder commitment, reducing the risk that advisors invest significant time in processes that never proceed to market.
Earnout-linked fee deferrals have become more common. According to the same survey, 41 per cent of advisors will allow sellers to delay paying a portion of their success fee until the seller receives the earnout. This alignment ensures advisors share in the uncertainty of contingent consideration rather than collecting fees on value that may never materialise.
The best advisory relationships feature clear fee structures, alignment mechanisms that ensure shared interests, and transparency about what the founder can expect at each phase of the engagement. Founders should ask prospective advisors about their fee structures, inquire about accelerator options, and understand how fees relate to earnout consideration before engaging.
If you want to understand more about how sell-side advisory works and whether it makes sense for your situation, we would welcome a transparent conversation about what the process looks like and how we approach founder engagements.