The PE Deal Series · Post D.5
View the full series →The Toll Road
~$4M in transaction costs sat between the headline and the wire. Every dollar came out of the founders' side.
Every PE deal has a toll road between the headline number and the wire. At Crossfield Holdings, the toll was ~$4M. That's the gap between the $119M headline and the ~$115M in deal components the founders could identify on the closing statement. Nobody lied about it. Nobody hid it. But nobody modeled it for James and Dan before they signed the LOI, either.
Transaction costs are the fees, premiums, and filing charges deducted from the seller's proceeds before a single dollar moves. In a middle-market PE deal, they typically run 2%–3.5% of enterprise value. Crossfield's ~$4M sat at the upper end of that range — and every penny came out of the founders' side.
The Moving Bill
Think of selling a house. You negotiate a price, sign the contract, and celebrate. Then closing day arrives with a settlement statement: agent commissions, title insurance, transfer taxes, attorney fees, recording charges. The price hasn't changed. The amount you take home has. By a lot.
Now multiply the house by a thousand. That's a middle-market PE deal. The bill is larger, the line items are more exotic, and the sellers almost never model the total before they commit.
Where the $4M Went
At Crossfield, the ~$4M in transaction costs broke down across four buckets.
- ~$1.7M — Investment banker. Mercer Advisory's sell-side advisory fee for running the process, sourcing the four LOIs, and managing the negotiation through closing. Roughly 1.4% of enterprise value. Mercer's fee was disclosed in the engagement letter. James and Dan knew this number. It was the only transaction cost either founder had mentally accounted for.
- ~$850K — Legal fees. Barrett Law Group handled the purchase agreement, disclosure schedules, and all seller-side negotiations. The founders saw monthly invoices but never totaled them until closing.
- ~$650K — Accounting and advisory. Quality of earnings (QoE), tax advisory, and transaction accounting. The QoE report alone — the document that validates the seller's EBITDA to the buyer — ran several hundred thousand. Tax structuring for the installment sale, the rollover equity, and the 338(h)(10) analysis added the rest.
- ~$800K — Other. Escrow agent fees, the representations and warranties (R&W) insurance premium, regulatory filings, and miscellaneous closing costs. The R&W premium alone — insurance that shifts certain indemnity risk off the founders — was the largest single item in this bucket.
Every dollar was deducted from proceeds. None came from the buyer. The founders paid for the privilege of selling their own company.
Deal Spectrum: 7/10
The left column shows what a founder-favorable version of this term looks like. The right column shows what Crossfield signed.
The mental model is the Toll Road. The headline number is the destination. Transaction costs are the tolls between here and there. The buyer doesn't pay them. The buyer doesn't disclose them. And most founders don't add them up until the wire comes in short.
The Crossfield Moment
Three days before closing, the escrow agent sent James the final settlement statement. The transaction cost column totaled $3.97M.
James stared at the number. He'd known about Mercer's fee. He'd seen Barrett's invoices. He'd never added them together.
"That's a house," he said to no one in particular.
He signed anyway. They all do.
Founder Protection Tips
Model transaction costs before signing the LOI. Ask your banker and counsel for a realistic all-in estimate — then add 15%. The LOI creates momentum that makes cost objections harder later.
Negotiate cost-sharing on R&W insurance. The buyer benefits from R&W coverage too — lower indemnity exposure, cleaner cap table. Push for a split premium or buyer-paid policy.
Cap legal fees with your own counsel early. Engagement letters with fee estimates and budget checkpoints prevent surprise invoices at closing.
Require a preliminary settlement statement 30 days before closing. No founder should see the total cost column for the first time on signing day.
Include transaction cost estimates in your net-proceeds model, not just the headline. The number that matters is what hits your account — not what the LOI says.
Read before you sign.