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to the next deal
In general bankers only get paid if a deal gets announced and then closes. There are some exceptions, for example if they deliver a Fairness Opinion for a deal (just before announcement) and the deal gets announced, they will get paid a small % of the overall fee for that.
And occasionally for some engagements a small monthly retainer will be paid (we're talking keep-the-lights-on type fee here).
But in general, bankers don't make much if a deal fails to 1) have a signed definitive agreement 2) fails to close.
hmm... It feels like a first date... you do whatever you can and if you seal the deal then it all worked out, if you go home alone, then you wasted time/money.
Bankers get reimbursed for expenses incurred while working on deals, but that's about it. However, I think everyone knows that every deal has a significant chance of failure, and you guard yourself against getting too hopeful. Towards the end of my banking stint, I was staffed on a buyside M&A assignment that would have been almost 20 billion dollars. To top it off, we actually had our choice to take either the buyside or the sellside - both seller and buyer were longtime trusted clients of the MD involved (and I don't say this lightly, in this day and age this is very rare but both companies had complete loyalty to this particular MD). An LOI had already been signed, CEOs had met, everything seemed to be set in stone. Deal still fell through and noone seemed overly surprised. Just the nature of the game.
Does the advisor mandated for a defense (in this case Yahoo) not receive any compensation for the fact that Microsoft was effectively warded away? Or are the rewards to be found in future business that Yahoo will generate?
I mean it's not out of the question but it would be highly unusual to be compensated for a deal NOT going through.
I am not extremely familiar with hostile takeover contracts, but generally an M&A engagement letter is structured such that the adviser is awarded a % of the total transaction value (on sub $1B deals, around 1% or slightly more and on larger ones obviously less than that).
Maybe someone who has worked on a hostile takeover could offer up first-hand knowledge here?
Seems like a perverse incentive structure for the bankers who are meant to be fighting off a deal!
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