If you're thinking about selling your business or getting new funding, it's important to find an investment banker who fits well with your financial plans and offers clear terms. We’re here to guide you through the process.

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The engagement letter between you and the investment bank is a critical document that sets up your partnership for success. It details important terms to make sure everyone agrees and guides the sale process. Knowing what’s in this letter can make the sale go smoothly and help you get the best price for your business.

1. Understanding the Retainer

The retainer is an upfront fee you pay to the investment bank for their services. Here are some ways it can be set up:

• Lump Sum Payment: You pay the whole retainer fee at once.

• Staggered Payments: You pay the retainer in parts over time.

• Waived for Success Fee: Sometimes, the bank might not take a retainer if they only get paid a success fee when the deal closes.

Agreeing on the retainer is important because it starts the financial relationship and builds trust between you and the bank.

2. Structuring the Success Fee

The success fee is what motivates the bank to close your deal successfully. It can be arranged in different ways:

• Flat Fee: A fixed fee, regardless of the deal size.

• Percentage of Proceeds: A fee based on the total value of the transaction.

• Tiered Structure: The fee increases as the sale price goes up, pushing the bank to aim higher.

Choosing the right success fee structure ensures both you and the bank work towards getting the highest sale price possible.

3. Defining Success and Payment Terms

How success is defined and when the bank gets paid are key details:

• Total Transaction Value: Includes all parts of the deal, cash and non-cash.

• Cash Compensation: Only the cash part of the deal.

It’s also important to decide if the bank gets its fee right when the deal closes or if it must wait until certain conditions are met, like the release of escrow funds.

4. The Importance of the Tail Period

The tail period is the time after your contract with the bank ends but they can still earn a fee if the deal closes. This protects the bank if a deal happens after they’ve stopped actively working with you. Understanding the tail period ensures both parties know their rights and obligations going forward.

5. Achieving Alignment for a Successful Outcome

For the best sale outcome, you and the bank must work together with clear goals. Having the right advisors can help create an engagement letter that meets the needs of both parties, making the sale process smoother and more successful.

The investment bank engagement letter is more than a contract; it’s a crucial tool that helps you and the bank work together for a successful sale. By knowing and discussing its key terms, you can make sure your goals are met and the bank is motivated to get great results.