SEISEI INSIGHTS — M&A
Is an M&A Retainer a Red Flag? Reading the Fee Structure
2026-07-22
From clients weighing the acquisition of a Japanese company, we hear the same unease about the engagement fee: "They're asking for a retainer — does that mean they can't be trusted?" The wariness is understandable, because cases do exist where a retainer is collected and then contact goes silent. But the problem is not the retainer as a mechanism; it is that some abuse it. This article treats the question structurally: what a retainer actually pays for, and how to separate a legitimate one from a trap.
A Retainer Pays for Real Work
The retainer exists for a reason. Screening acquisition targets, making anonymous initial contact, arranging meetings with owners, conducting preliminary due diligence — these are weeks or months of genuine work. The retainer is the fee for that engagement phase, the same in nature as a lawyer's advisory fee or an accountant's diagnostic fee.
At the opposite end sits the "pure success fee" model, which charges nothing until a deal closes. But it carries a structural bias: because no closing means no fee, the advisor is inclined toward deals they judge most likely to complete, or toward pushing for an early decision. The presence or absence of a retainer alone does not settle which is better.
Three Tests for a Legitimate Retainer
Whether a retainer is reasonable can be checked on three points.
| Test | What to confirm |
|---|---|
| Matched to deliverables | Does the retainer buy something tangible — a target list, a screening report, due-diligence findings? Money with no deliverable is a red flag |
| Credited against the success fee | In legitimate practice, the retainer and any interim fee are ultimately deducted from the final success fee — not charged on top |
| A transparent fee structure | Is the cost at each stage set out in writing — the scope of initial screening, the retainer amount, and the method for calculating the success fee? |
Success fees are commonly calculated by the "Lehman formula," under which the rate steps down as the transaction value rises. Confirm that the contract states which base amount is taken and which rate applies to it.
Institutional Backing
The Guidelines for Small and Medium M&A, issued by Japan's SME Agency, require that the fee structure — and any arrangement to be paid by both buyer and seller — be made clear to the client. Firms registered under the M&A Support-Agency Registration System declare their adherence to such a code of conduct. A party that quotes fees only verbally, or is vague about dual compensation, can be read against this standard.
Treat It as a Structural Question
"Is a party that charges a retainer a fraud?" is, in truth, hard to verify. Easier to confirm are three things: what deliverable the retainer corresponds to, whether it is credited against the success fee, and whether the whole fee is written into the contract. A retainer should be a starting point, not an endpoint — with real work and a creditable settlement following behind it.
This article provides general information on institutional frameworks and does not constitute individual legal or tax consultation. For specific matters, we introduce qualified partner professionals who handle the work accordingly.