Using Investment Bankers to Sell a Business

Terms of Investment Banking Agreement

Investment banking is a valid alternative to a brokered sale. Here are some of the terms you can expect to encounter in the investment banking agreement.

Selling a business can be a long and frustrating process.

Even if you enlist the help of a broker, the advance preparations and prospective buyer meetings can be overwhelming. Investment bankers offer an alternative to a traditional business sale. Although the investment banker option isn't right for every business, it has the potential to streamline the selling process and put more money in the seller's bank account.

The seller's relationship with the investment banker is carefully defined in an investment banking agreement. These agreements are legally binding documents, full of words and terminology that are unfamiliar to the average business seller. But unless you completely understand the concepts it contains, you could easily find yourself locked into an untenable agreement for months or even years. Although investment banker agreements should always be subjected to attorney review, here are some of the phrases and concepts you will are likely to encounter.

  • Banking Team. Investment banks take a team approach consisting of a senior investment banker(s) and junior staff. Although most of your contact will be with junior staff during the planning and preparation stage, it's important to make sure senior team members are involved because they are the ones who have personal relationships with investors and buyers.
  • Deliverables. The agreement should define a timeline for deliverables on both sides of the relationship. Your deliverables include the information necessary to prepare the pitch to investors or buyers while the banker's deliverables are prospect contact dates and closing deadlines.
  • Retainer. The retainer is a fixed monthly fee you will be required to pay the banker during the planning and preparation phase. These amounts are credited against the success fee, but the banker keeps the retainer even if the deal never reaches closing.
  • Success Fee. The success fee is the fee the investment banker receives when the deal is closed. Success fees are based on a percentage of the final purchase according to a schedule like the Lehman fee structure.
  • Carve Outs. Carve outs are exclusions or special circumstances that are applied to the sale. They can include previously contacted buyers, debt sourcing, and controlling interests.
  • Term of Engagement. Agreements usually define an engagement term of six months to a year, with a "tail" that guarantees the banker's fee if the deal closes within a specified period of time after the engagement period ends (another six months to a year).

Share this article

Additional Resources for Entrepreneurs

Lists of Venture Capital and Private Equity Firms

Franchise Opportunities


Business Glossary


Conversation Board

We greatly appreciate any advice you can provide on this topic. Please contribute your insights on this topic so others can benefit.

Leave a Reply

Questions, Comments, Tips, and Advice

Email will not be posted or shared
Code Image - Please contact webmaster if you have problems seeing this image code

Problem Viewing Image? Load New Code