Working with Investment Bankers: A Seller's Guide
How to select, hire, and maximize value from sell-side advisory.
Key Takeaways
- •Investment bankers typically add 10-30% to transaction value, exceeding their fees
- •For deals over $3M EBITDA, professional advisory is almost always worth the cost
- •Select bankers based on relevant transaction experience, not just firm prestige
- •Engagement letters are negotiable—understand terms before signing
Selling a business is likely the largest financial transaction you'll ever complete. Investment bankers bring expertise, buyer relationships, and process management that most business owners lack. The right banker can mean millions in additional value—far exceeding their fees.
This guide covers when to hire an investment banker, how to select the right one, and what to expect from the engagement.
When to Hire an Investment Banker
Not every transaction requires investment banking services. Here's when it makes sense:
You Likely Need an Investment Banker If...
When You Might Not Need One
What Investment Bankers Do
Investment bankers provide comprehensive sell-side advisory services:
Preparation Phase
- • Valuation analysis and pricing guidance
- • Confidential Information Memorandum (CIM)
- • Financial model development
- • Management presentation preparation
- • Data room organization
Marketing Phase
- • Buyer identification and outreach
- • NDA management
- • Initial buyer screening
- • Process timeline management
- • Competitive tension creation
Negotiation Phase
- • LOI negotiation and comparison
- • Deal structure optimization
- • Purchase price negotiation
- • Working capital peg discussions
- • Terms and conditions negotiation
Closing Phase
- • Due diligence coordination
- • Issue resolution and re-trading defense
- • Definitive agreement review
- • Closing mechanics coordination
- • Post-closing adjustment support
Fee Structures
Investment banking fees have two components: retainers and success fees.
Retainer Fees
Monthly retainers range from $10K-$50K+ per month depending on deal size and banker tier. Retainers cover ongoing work during the engagement period (typically 6-12 months) and are usually credited against the success fee at closing.
Success Fees
| Transaction Size | Typical Success Fee | Example |
|---|---|---|
| $10M-$25M | 3-5% | $300K-$1.25M |
| $25M-$50M | 2-4% | $500K-$2M |
| $50M-$100M | 1.5-3% | $750K-$3M |
| $100M+ | 1-2% | $1M-$2M+ |
The ROI Calculation
A skilled investment banker typically increases transaction value by 10-30% through competitive tension, better positioning, and skilled negotiation. On a $30M transaction, a 20% improvement ($6M) far exceeds even a 4% fee ($1.2M). The net benefit is $4.8M.
Fee Negotiation Points
- Minimum fees: Bankers set floors regardless of transaction size
- Retainer credits: Ensure retainers apply against success fee
- Tiered structures: Lower percentage on amounts above thresholds
- Tail provisions: Fee obligations after engagement ends (typically 12-24 months)
- Expense caps: Limit reimbursable expenses with approval thresholds
How to Select an Investment Banker
Not all investment bankers are equal. Selection should focus on relevant experience and fit.
Selection Criteria
Industry Experience
Has the banker completed transactions in your industry? Industry expertise means they understand valuation benchmarks, know the buyers, and can credibly position your business.
Deal Size Fit
Your deal should be meaningful to the banker. A $30M transaction is priority for a boutique but an afterthought for Goldman Sachs. Match your size to their focus.
Buyer Relationships
Who do they know? Ask specifically which buyers they would approach for your deal and which they've closed transactions with. Generic lists are less valuable than specific relationships.
Team Composition
Who will actually work on your deal? Senior bankers pitch; junior associates execute. Ensure the senior person you meet will be involved throughout, not just at closing.
Recent Transactions
Ask for references from recent sell-side clients. Call them. Ask what went well, what didn't, and whether they would use the banker again.
Watch for These Red Flags
- • Unrealistic valuation promises to win your business
- • Vague or generic buyer lists without specific relationships
- • High retainer with low success fee (misaligned incentives)
- • Unwillingness to provide references
- • Senior bankers disappear after engagement signing
The Sale Process Timeline
A typical investment banker-led process takes 6-12 months from engagement to close.
Months 1-2: Preparation
Valuation analysis, CIM development, management presentation, data room setup, buyer list development.
Months 2-4: Marketing
Initial buyer outreach, NDA execution, CIM distribution, preliminary interest assessment, management meetings scheduled.
Months 4-5: Management Presentations
In-person or virtual presentations to interested buyers. Facility tours. Q&A sessions. Indication of Interest (IOI) deadline.
Month 5-6: LOI Phase
Letter of Intent negotiations. Buyer selection. Exclusivity granted to winning bidder.
Months 6-9: Due Diligence
Financial, legal, operational, and commercial due diligence. Issue resolution. Purchase agreement negotiation.
Month 9-12: Closing
Definitive agreement finalization. Regulatory approvals if needed. Financing confirmation. Closing mechanics. Wire transfer.
Related Resources
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