An investment banker engagement letter is a critical document that outlines the terms of the relationship between a company seeking to do a transaction and the investment bank advising on that deal. Key elements include the scope of services, term sheet details, compensation structure and process timelines. This article explores common provisions seen in engagement letters and provides a sample pdf for reference.
Defining the scope of advisory services to be provided
The engagement letter will delineate exactly what services the bank will provide, such as identifying potential buyers or investors, preparing valuation analyses, structuring the transaction, negotiating key terms, and closing support. The scope section outlines expectations on deliverables.
Breakdown of fees and compensation details
A major component is outlining the fees and payment structure, including retainers, success fees contingent upon deal completion, and expense reimbursements. Compensation specifics will be laid out like percentage of transaction value.
Process milestones and timeline expectations
Engagement letters provide a high level overview of the deal process, like expected timing delivering a pitchbook, securing indications of interest, performing due diligence, and signing/closing the deal. This sets clear expectations.
The investment banker engagement letter serves as a mutually binding document codifying the client-advisor partnership. Key sections cover services scope, compensation framework and process time horizons critical for alignment.