Sell-side investment banker

What this seat actually does

A sell-side banker prepares your company for market, builds the materials that describe it, identifies and approaches buyers, runs a structured process designed to create competitive tension, and manages the bidding and negotiation up to signing. The core of what you are buying is not a document. It is a process that produces more than one credible buyer at the same time, because a single interested party is a negotiation and several are an auction.

They also absorb an enormous amount of work that would otherwise land on your CFO and on you. A sale process generates constant demands for information while the company still has to hit its numbers, and a visible stumble in performance during a process is expensive.

When you need one

When you have decided to sell, or to test the market seriously, and the company is prepared enough that a buyer’s diligence will not turn up surprises. Hiring one before preparation is finished is the classic sequencing error: the banker ends up doing cleanup at banker rates, or worse, takes an unprepared company to market once and burns the buyer list.

How they charge

The usual structure is a retainer or monthly work fee, sometimes credited against the eventual success fee, plus a success fee payable at closing that scales with price. Ask for the whole schedule in writing, including how the fee is calculated at several different prices, because the shape of that curve tells you what the banker is actually optimizing for.

Two clauses matter more than the headline percentage and are routinely skimmed. The tail provision keeps the fee payable if you sell to someone on their list after the engagement ends, and the definition of transaction value determines whether the fee is charged on things you never receive in cash, such as assumed debt, rollover equity or an earnout that may never pay out. The Institute does not publish rate benchmarks, because they vary by size, sector and mandate, and anyone quoting you a market rate without having seen your situation is quoting an average.

What to ask before you hire

• How many sell-side mandates have you completed in the last three years at roughly my size, in roughly my sector, and how many of those closed?
• Which of them did not close, and what happened?
• Who specifically will do the work day to day, and how many other live mandates will that person be carrying at the same time?
• Show me the buyer list you would build for my company, and tell me how many are strategic, how many financial, and how many you have an existing relationship with.
• Walk me through your fee at a low, expected and high outcome, and show me the tail provision and the definition of transaction value.
• What would make you decline this mandate, or tell me to wait a year?

How to compare candidates

• Sector and size fit beats brand. A banker who sells companies your size in your industry every year is worth more than a famous name for whom you are a small file.
• Meet the person who will run the process, not the person who wins the mandate. These are frequently different people, and the difference is the whole engagement.
• Test the buyer list. A banker whose list is mostly names you already know is not adding much reach.
• Weigh candour. The one who tells you what is wrong with your company in the pitch is telling you what every buyer will find anyway.
• Distrust the highest valuation in the room. Bankers sometimes win mandates by flattering the seller’s number, then spend the process managing it down.

The mistake owners make

Hiring on a single referral, from an accountant or a lawyer or a friend who sold a company once, without ever running a comparison. It is the largest professional fee most owners will ever pay, and it is very often awarded without a second candidate in the room.

What this is not

Not a business broker, who typically lists smaller owner-operated companies and works differently. Not a buy-side banker, who works for the purchaser. Not your transaction counsel, though the two must work together closely.

The Institute accepts no payment from any advisor, takes no fee tied to any transaction, and does not place or refer professionals for compensation. This entry describes a role, not a recommendation of any firm.