Looking for investment banker engagement letter sample can help you better understand the key elements in an engagement letter between an investment bank and its client. An engagement letter is a legally binding contract that outlines the scope of work, timeline, fee structure, and other terms. For investment bankers, clearly defining expectations upfront is crucial as deals often involve highly complex transactions. This article will provide an overview of what to include in an investment banker engagement letter and share some helpful tips when drafting one.
Specify the scope of services in detail
The engagement letter should clearly lay out the services the investment banker will provide, whether it is advising on M&A transactions, capital raising, valuation analysis, strategic options, or other services. Being as specific as possible on the scope prevents misunderstandings down the road. For example, stating the investment banker will ‘advise on the potential sale of Company XYZ’ provides more clarity than just saying ‘provide merger and acquisition services’.
Outline timeline and important deadlines
Include timeline milestones such as due diligence completion, management presentation preparation, estimating timing to reach a deal, and other key deadlines. This sets clear expectations on deliverables and ensures alignment on the deal schedule. Also consider including provisions for extensions if the transaction timeline shifts.
Specify fee structure and payment terms
The letter should transparently lay out advisor fees and costs, including the amount and structure such as a retainer fee, success fee percentage, and any expenses. Payment terms should also be defined clearly upfront, like the timing of retainer payments, reimbursement of expenses, and contingency on deal completion.
Note any non-fee services provided
If the investment banker offers complimentary services upfront, like initial valuation or assessment, those should be explicitly called out as not tied to fees. This prevents fee disputes and shows the advisor is providing value from the start.
Include confidentiality and non-disclosure clauses
Robust confidentiality provisions are essential given sensitive information involved in transactions. The engagement letter should prohibit disclosure of confidential data and allow sharing only on a need-to-know basis. You can also include clauses about honoring any existing non-disclosure agreements.
In summary, a well-crafted investment banker engagement letter will specify services, timeframes, compensation, confidentiality, and other terms to set clear expectations. Paying close attention to defining details upfront creates mutual understanding and sets the advisor relationship up for success.