Just consider Qatalyst Partners. Yesterday, Broadcom announced it was buying NetLogic for $3.7 billion.
Frank Quattrone’s Qatalyst is advising NetLogic in the sale. For this, the San Francisco-based Qatalyst is expected to earn about $20 million in fees, according to Jeff Nassof, an associate with Freeman & Co.’s consulting division. Freeman’s consulting unit estimates fees that IB’s earn on deals globally, Nassof says.
Freeman uses many different variables to determine how much IB’s earn when advising on a deal. For small deals, advisors can earn as much as 3% of the enterprise value. But for mega deals, fees can drop to below .5% of the enterprise value. For instance, bankers advising on AT&T’s $39 billion buy of T-Mobile earned “well under .5%,” Nassof says.
When estimating fees, Freeman takes into consideration the regions of the country in which the deal takes place, the investor groups and whether private equity is involved. For certain regulated industries, where it’s harder to get a deal done, Freeman will sometime ascribe higher fees. The more regulated industries include telecom and financial services (banks specifically), Nassof says.
However, the most important variable is the enterprise value, he says.
Qatalyst seems to be making out well. Last month, Hewlett-Packard confirmed it was buying Autonomy for $10 billion. Qatalyst was one of several advisors for Autonomy (they included UBS, Citigroup, Goldman Sachs and JPMorgan Chase). Autonomy is paying $39 million in fees on that deal and Qatalyst is expected to take about $12 million, Nassof says. Qatalyst is expected to get the most in fees because it was Autonomy’s lead advisor, he says.
Qatalyst and Centerview Partners also advised Motorola Mobility in its $12.5 billion sale to Google. Motorola is expected to pay $38 million in fees, Nassof says. The IBs are expected to split the $38 million since it’s not clear if either Qatalyst or Centerview did the bulk of the work.