Reviewing the Investment Banking Engagement Letter and debunking myths about so-called success fees as only compensation on Wall Street

Date: Fri, Jul 8, 2016 at 7:03 AM
Subject: Quick Tips: Reviewing the Investment Banking Engagement Letter

Hi Jeffrey,

Choosing the right investment banker is one of the most important decisions when selling your business. The engagement letter is the first step in this process.

If negotiated and structured properly, the agreement should align the interests of both parties and properly incentivize the investment banker to close a deal. Here are a few key points to cover when reviewing the engagement letter.

Quick Tips
Fee Arrangement Typically, investment bankers will charge a non-refundable deposit or retainer plus a success fee based on closing the transaction. This is a common and acceptable practice: The investment banker should be putting a significant amount of work into preparing your company for sale and should be compensated for his/her efforts as the work gets completed. Paying a mutually agreed-upon retainer also shows your level of commitment to the sale process.
Granting exclusivity to an investment banker can feel like a daunting proposition, and there is certainly a risk to doing so. If a banker does not meet your expectations, it can be a tremendous setback. That said, most investment bankers will require exclusivity.The sale process can take a number of months, and the banker wants to ensure that his or her time spent preparing your team and offering materials doesn’t go to waste. Choosing not to give exclusivity to an investment banker may limit your ability to get a top professional in your corner. To minimize your risk and ensure that your investment banker is committed, your deposit/retainer should be a small portion of the banker’s overall compensation — not nearly enough to pay for total time spent on your deal.
Term of Engagement
The term of engagement specifies how long the agreement lasts. Terms usually span 6-12 months, allowing time for your investment banker to prepare a confidential information memorandum, send out summaries to potential buyers, solicit interest, receive offers, and negotiate a deal.For more information on the engagement letter (including termination and tail period, reimbursable expenses, and covered transactions), and other M&A documents, download

7 M&A Documents Demystified.

Meghan Daniels
Managing Editor, Axial Forum
M&A Docs Main Downloadable
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