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How To Engage An Investment Banker

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When business owners look to sell their companies, they seriously need to consider hiring an investment banker or some similar specialist. Based on a survey of 107 corporate attorneys, it is a mistake – a potentially serious mistake – not to negotiate an investment banking agreement. Moreover, about a sixth of the corporate attorneys reported – in their experience – that failing to negotiate the agreement or not properly understanding what they signed has resulted in litigation within the last 5 years.

According to Frank Carone, executive partner at Abrams, Fensterman, “Some possible mistakes in these agreements include:

  • Having an excessively long time frame where the investment bank has exclusive rights as sometimes investment banks might ask for very long period such as 2 years when 6 months is the norm,
  • Paying the same commission for the investment bank raising debt (easier to do) as equity (harder to do),
  • No having reciprocal indemnifications…while the investment bank requires the company to indemnify it for misinformation provided by the company to potential buyers, the company should be indemnified by the investment bank for providing misinformation to potential buyers.”

According to John Bowen, co-founder of BSW Inner Circle and author of Elite Wealth Planning: Lessons from the Super Rich, “Relying on talented, experienced professionals to help you deal with financial matters where you lack expertise such as selling your company is often a very good idea. But, each situation is different and it is something you should probably seriously consider. Remember, one of the main reasons for using an investment bank is to get a better price for your company after the investment bank’s commission and/or get terms that are more appealing to you.”

If you think that an investment bank would be helpful, you need to connect with a high-caliber one. Their reputation is a factor you likely want to consider. Moreover, regularly the other professionals you are working with can help you identify candidates for you to evaluate.

Very importantly, you should have a good understanding of your arrangement with the investment bank. Depending on circumstances, you might want to negotiate the terms of the engagement.

Bank Headquarters BuildingGetty

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When business owners look to sell their companies, they seriously need to consider hiring an investment banker or some similar specialist. Based on a survey of 107 corporate attorneys, it is a mistake – a potentially serious mistake – not to negotiate an investment banking agreement. Moreover, about a sixth of the corporate attorneys reported – in their experience – that failing to negotiate the agreement or not properly understanding what they signed has resulted in litigation within the last 5 years.

According to Frank Carone, executive partner at Abrams, Fensterman, “Some possible mistakes in these agreements include:

  • Having an excessively long time frame where the investment bank has exclusive rights as sometimes investment banks might ask for very long period such as 2 years when 6 months is the norm,
  • Paying the same commission for the investment bank raising debt (easier to do) as equity (harder to do),
  • No having reciprocal indemnifications…while the investment bank requires the company to indemnify it for misinformation provided by the company to potential buyers, the company should be indemnified by the investment bank for providing misinformation to potential buyers.”

According to John Bowen, co-founder of BSW Inner Circle and author of Elite Wealth Planning: Lessons from the Super Rich, “Relying on talented, experienced professionals to help you deal with financial matters where you lack expertise such as selling your company is often a very good idea. But, each situation is different and it is something you should probably seriously consider. Remember, one of the main reasons for using an investment bank is to get a better price for your company after the investment bank’s commission and/or get terms that are more appealing to you.”

If you think that an investment bank would be helpful, you need to connect with a high-caliber one. Their reputation is a factor you likely want to consider. Moreover, regularly the other professionals you are working with can help you identify candidates for you to evaluate.

Very importantly, you should have a good understanding of your arrangement with the investment bank. Depending on circumstances, you might want to negotiate the terms of the engagement.

Bank Headquarters BuildingGetty

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