This article was published on May 29, 2025, at 4:55 p.m. on the ChosunBiz MoneyMove site.
Competition among advisory firms, considered key players in the mergers and acquisitions (M&A) market, is intensifying. In particular, as so-called speculative listings increase, aggressive sales tactics resembling 'eating away at one's own flesh' are being employed.
According to investment banking (IB) industry sources on the 29th, the fierce dumping competition among advisory firms is leading more of them to replace the expense incurred during due diligence in the deal process with success fees in the form of incentives. While it is not unusual for bye-side advisory firms to bundle fees from original buyer tapping to the signing of the share purchase agreement (SPA), sell-side advisory firms are also engaging in sales that involve abandoning fixed fees such as upfront fees that they previously received.
As the channels for advisory services diversify, including accounting firms, securities companies, and foreign investment banks, advisory expenses are decreasing, alongside the elimination of fixed fees typically received at various stages. In particular, advisory firms are increasingly abandoning fees such as upfront fees, retainer fees, and out-of-pocket expenses. Initially, both sellers and buyers paid fees to advisory firms at various stages, including the submission of due diligence reports, signing of share purchase agreements, and transaction closure.
The intensifying competition among advisory firms is contributing to this phenomenon. Particularly, as more boutique firms specializing in deals are established by professionals who previously worked at large accounting firms and foreign securities companies, a fierce price-cutting competition is developing in various areas. Recently, law firms that previously provided legal advisory services have also begun to hire experts from accounting firms to enter the financial advisory sector. With the rise of smaller firms, the competition for mandates has become even more intense, resulting in larger firms lowering their advisory expenses.
An industry insider noted, 'As the M&A market stagnates, some advisory firms are transitioning from lowering advisory expenses to success fee models,' adding that 'both sellers and buyers are increasingly seeking advisory firms that do not charge upfront fees or due diligence expenses due to the perception of 'cuttable expenses.'
The recent increase in speculative listings in the market is one of the reasons behind the changes in advisory contracts. As more advisory firms emerge, sellers are choosing a conditional advisory structure, where rather than granting authority to a single firm, they establish advisory contracts with firms that bring in buyers. In this situation, advisory firms are reportedly offering significant benefits, such as waiving due diligence expenses, to secure as many prospective buyers as possible.
A representative from a local boutique firm stated, 'Sellers prefer a soft tapping approach, where they find buyers willing to acquire assets at desired prices without formal advisory contracts,' and added, 'From the advisory firm's perspective, it is critical to find prospective buyers from as many different fields as possible, so they are reducing any commissions they can while increasing the success fee rates.'
The industry anticipates that this type of price-cutting competition will somewhat diminish starting in the second half of the year. With several private equity fund (PEF) managers needing to push forward with deals this year as dry powder accumulates, and as political uncertainties like the June election begin to clear up, transactions are expected to gain momentum.
A representative from a local accounting firm mentioned, 'I believe we are in the planting phase now, and we are accepting offers from sellers and buyers while somewhat absorbing losses,' explaining that 'while we cannot immediately change contracts that have transitioned to a success fee model, we expect that as transactions leading to deal closings increase in the second half, profits will rise as well.'