When you begin to think about retaining an investment banker to sell your business, there are three key terms that you will want to consider regarding investment banking fees:
- Commission: Exactly how is the M&A Banker’s commission to be calculated? Is it based on the sale price? How exactly is the sale price determined? What if there is an earnout? What if you sell 75% of your company and retain 25%? What if the company is acquired in full and the buyer gives you 25% of the equity of a reconstituted entity? Is there a minimum commission if you sell your company?
- Term & Tail: How long will the investment bankers work on the sale? What if the closing is delayed? What if they don’t get a deal done during the agreed term but 2 years later to one of the buyers, that showed interest during the sale process, buys your company – do the M&A bankers get paid their commission?
- Retainers: How much are the retainers? Will the retainers be classified as an addback to EBITDA? Are they paid monthly? When do the retainers cease? Do they net against the commission?
When it’s time to retain an M&A Banker, you may want to first retain expert M&A legal counsel, so they can help you navigate and negotiate some of the terms that are unique to these types of engagement agreements.
Have a great day everyone.
R. Bruce Andrews
Managing Director, Defense
