How are transaction fees and financing fees calculated in an M&A deal?

Transaction fees are usually based off of a percentage of the total transaction value, usually around 2.0 to 2.5%. This is paid as a one-time fee and is displayed in the income statement after operating income.

Financing fees are usually based off of a percentage of the total amount of debt, usually around 2.0 to 2.5%. In an LBO, sometimes the financing fees will only be calculated off of the term loan and mezzanine while excluding the revolver. However, this is amortized through a 5-7 year period, so the expense will be distributed over 5-7 years on the income statement through amortization. The financing fees will be capitalized on the balance sheet during the transaction and decline over time as they amortize.