When an investment bank is formally engaged by a client for a specific transaction or business project, an investment banking engagement letter is signed to specify the scope of services, timeline, compensation structure, and other key terms. For young professionals pursuing a career in investment banking, reviewing real-world engagement letter examples can help gain an in-depth understanding of standard practices in the field. This article will analyze several sample pdf engagement letters across M&A, IPO, debt financing deals, and provide insights into crafting a comprehensive engagement letter.
Specifying Exact Scope of Work in Investment Banking Engagement Letter Pdf
The most crucial section of an investment banking engagement letter pdf is clearly delineating the scope of work. For an M&A transaction, this would entail identifying the potential buyers/targets, valuation analysis, preparing marketing documents, contacting prospective buyers, facilitating due diligence, and negotiating transaction terms. For an IPO, the scope will outline timeline to IPO, drafting of prospectus, investor roadshows, underwriter selection, and pricing. The scope of work forms the basis for contractual obligations, so it must be as specific as possible.
Defining Compensation Structure in Sample Investment Banking Engagement Letter
Investment banks earn fees through a combination of retainer, success fee, and out-of-pocket expense reimbursements. Retainer fees are fixed periodic payments for services rendered, while success fees are contingent payouts after deal completion. For sample M&A engagement letters, retainers often range 2-5% of transaction value, and success fees around 1%. The compensation structure, fee schedules, and payment timelines should be clearly defined upfront in the letter.
Specifying Exclusivity Arrangements in Investment Banking Engagement Pdf
Exclusivity clauses prevent the client from using other banks for the same mandate during the engagement term. Typical M&A exclusivity periods range from 3-6 months. Exclusivity ensures the bank dedicates necessary resources for successful execution. However, clients must strike a balance between reasonable exclusivity and flexibility to change banks.
Defining Liability Limitations in Investment Banking Engagement Letter Pdf
Investment banks limit legal liability through disclaimers outlining information provided is not a recommendation to pursue the transaction. This protects banks from lawsuits for unfavorable deal outcomes. Liability caps often range from 1-2x of total fees. While liability limitations are standard, clients should be aware of caps before signing the engagement letter.
In summary, real-world investment banking engagement letter example pdfs provide valuable insights into standard industry practices on scope, compensation, exclusivity, liability, and other key terms that young professionals should thoroughly review.