Investment Banker Engagement Agreement

Investment Banker Engagement Agreement

An investment banker engagement agreement is a legally binding contract that defines the relationship between a company (the client) and an investment bank (the advisor). This agreement outlines the scope of services the investment bank will provide, the compensation it will receive, and the responsibilities of both parties. It’s a crucial document that protects both the client and the bank and ensures a clear understanding of the engagement. **Key Components of the Agreement:** * **Scope of Services:** This section meticulously details the specific services the investment bank will perform. This could include advising on mergers and acquisitions (M&A), raising capital through debt or equity offerings, restructuring debt, or providing valuation services. The agreement should explicitly define the deliverables and the expected timeline for completion. Ambiguity in this section can lead to disputes, so clarity is paramount. * **Exclusivity:** The agreement usually specifies whether the investment bank has exclusive rights to represent the client for a particular transaction or period. An exclusive arrangement prevents the client from engaging another investment bank for the same service during the specified timeframe. Non-exclusive arrangements allow the client to hire other advisors. * **Compensation (Fees):** This section outlines how the investment bank will be compensated. Common fee structures include: * **Retainer Fee:** A fixed fee paid upfront, regardless of the transaction’s success. It covers the bank’s initial expenses and commitment of resources. * **Success Fee:** A fee contingent upon the successful completion of the transaction. It’s typically calculated as a percentage of the transaction value. * **Expense Reimbursement:** Reimbursement for reasonable out-of-pocket expenses incurred by the investment bank, such as travel, legal fees (if agreed), and due diligence costs. * **Break-Up Fee:** A fee payable to the investment bank if the transaction is terminated for reasons beyond the bank’s control (e.g., the client decides to abandon the deal). The agreement should clearly specify the calculation of fees, payment schedules, and any thresholds or hurdles that need to be met for the success fee to be earned. * **Term and Termination:** The agreement defines the duration of the engagement and the conditions under which either party can terminate the agreement. Common reasons for termination include breach of contract, material adverse change in the client’s business, or simply a change in strategic direction. * **Representations and Warranties:** Both the client and the investment bank provide representations and warranties regarding their legal standing, accuracy of information provided, and compliance with applicable laws and regulations. * **Confidentiality:** The agreement includes provisions to protect confidential information exchanged between the client and the investment bank. It outlines the permissible use of such information and the obligations of both parties to maintain its confidentiality. * **Indemnification:** This section specifies which party is responsible for covering losses or liabilities arising from the engagement. Typically, the client indemnifies the investment bank against losses arising from inaccurate information provided by the client. * **Governing Law and Dispute Resolution:** The agreement specifies the jurisdiction whose laws will govern the agreement and the methods for resolving disputes, such as arbitration or litigation. A well-drafted investment banker engagement agreement is essential for a successful and mutually beneficial relationship. It should be carefully reviewed by legal counsel to ensure that it adequately protects the interests of both the client and the investment bank.