Your advisory investments are only as good as the team giving the advice. For decades, this has meant that top-tier advisors have only really been accessible to corporations with deep pockets–the big ones that can afford to pay top prices for top talent.

For everyone else, the decision always comes down to money–how much money are you willing to pay for advisory services as you grow your business or begin to plan your exit? Those who are comfortable with big fees pay up, while those who don’t tend to forego important advisory services altogether.

At Embarc Advisors, we feel like it’s time to consider a third option–perhaps an entirely different business model. It’s time to rethink how you pay for M&A advisory services, when to engage an advisory team, and who to hire when you need an advisor the most.

M&A Advisory with an Hourly-Based Fee Model

When we started Embarc Advisors, one of our first big priorities was to make exceptional talent more accessible to startups and founders/owners in the middle market. For us, this meant adopting an hourly-based fee model instead of a traditional success-fee model.

Billing by the hour allows Embarc better to align our incentives with our client’s needs. At first, it might seem counterintuitive. Traditional models incentivize a closed deal by paying out a success fee equal to 5-10% of the total deal value to the advisory firm. Firms look forward to that big payday, and clients feel that their advisors are motivated to see their deal through.

But business M&A deals are complex. What happens if a client decides to back out in the middle of the process? For firms billing based on a closed deal, this can be a problem that creates a conflict of interest.

If you began to doubt your decision to pursue a deal, would you want your advisory team to minimize your concerns in order to close a deal? Probably not.

If you pay your firm by the hour, you can trust that their advice is aligned with your needs at the moment and not aligned with a greater interest in closing the deal, and that’s why we choose to be different.

The Truth Behind Success Fee Models

Take a moment to think about professionals who get paid using success-fee models. For example, real estate agents probably come to mind. In his best-selling book, Freakonomics, author and economist Steven Levitt lays out the truth behind success fee models–and why they really don’t work in the best interest of the client.

According to Levitt, when looking at the data from thousands of deals, real estate agents spend more time and effort selling their own homes than they do for client homes. Why? It’s because success fees incentivize closing a deal–fast, but not necessarily the best deal.

Real estate agents know that the longer a client’s house stays on the market, the more time and effort they will put into showing the property and communicating with sellers, agents, and potential buyers.

And for every day, week, or month that they invest in that property, the gains for adding a few thousand dollars to the sale price are minimal. Therefore, the most lucrative option is a quick sale with minimal effort.

Other professionals who work on a success fee also subconsciously default to this approach, focusing on closing a deal quickly but not necessarily the best deal.

How an Hourly-Based Fee Model Benefits Our Clients the Most

With an hourly fee model, our clients get the same level of attention and detail regardless of the size of the deal. To our firm, one hour on a $5 Million deal is equal to one hour on a $500 Million deal.

As a result, our clients get:

Focused Attention
Better Outcomes
Lower Fees

An Hourly Fee Model Keeps the Focus on Quality Advice

Traditional advisory firms work on dozens of deals simultaneously. They have backups for their backups to ensure that deals close and their services remain profitable. This kind of multi-tasked approach can pull attention away from some clients, leaving the advisory team constantly in a state of putting out fires.

By contrast, an hourly fee model allows us to reduce the total number of deals that we work on. We can commit distraction-free time to each client because they have bought our time, not just our advice. This allows us to achieve the best possible outcomes for each deal.

A Better Approach to Achieve Better Outcomes

In addition to focused time and attention, an hourly fee model helps us achieve better results by eliminating outside interests. Our team is empowered to take a firm position in negotiations, especially when advocating for our client’s best interests, because we’re not waiting for a closed deal to get paid for our time. Additionally, we have a lot more patience in the process, which translates to spending more time expanding outreach to a larger pool of potential buyers, ensuring a better, more competitive deal.

An Hourly Rate Means Lower Fees Proportionate to the Service Provided

When a deal closes, our total fees will often be a fraction of what traditional investment banks charge, even though we’ve put in proportionately more time and effort. The way that things have always been in business advisory is broken. The traditional success-fee model incentivizes closing as many deals as possible, as quickly as possible.

And for those who are really talented, it incentivizes a climb to the top–working large, $500 Million+ deals that starve the middle market of top-tier financial advisory talent. This is why we felt like the status quo had to change–and why we chose to disrupt a 100-year-old model. With our hourly-based fee model, you pay for the services that you get–and that’s it.

Embarc Advisors Finds Success with an Hourly Fee Model

Our hourly fee model is different. We’ve disrupted the industry with a model that makes a lot more sense for startups and founder-owned businesses in the middle market. M&A deal activity was down in 2023, yet our firm doubled in size because we have a better approach that’s closely aligned with our client’s needs.

At Embarc, we’ve successfully advised businesses across a broad range of sectors, including technology, healthcare, cannabis, industrials, and more–all with a very high close rate. We’ve delivered outcomes that exceeded client expectations. We have also been successful in several situations where traditional investment bankers have failed to close the deals.

Our firm is taking a different approach to M&A advisory. Get in touch with our team if you’re interested in learning more about how we can help your business take that next step.