Is it possible to hire **two ** sell-side IB advisors to market my company to various buyers? Or all IBs would require exclusivity when taking up a sell-side job? I am thinking that could be a good way to keep the process competitive among the IBs.
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Large M&A deals will often have two advisors due to volume of work. For a small company I don't think you'll want to pay the fees to both IBs...
I guess you mean I will have to pay 2 retainers to the 2 banks (the success fee will only be paid to the bank that finds the highest bidder). That's right and I was thinking that paying one extra retainer would be worth it, as the competition among the 2 IBs to find the highest bidder will lead to higher price overall. Does this make sense? Also, when an IB signs a sell-side engagement does it demand exclusivity? Or I am free to hire a second sell-side advisor?
Depends on your company size...maybe super LMM then desperate shops might but realistically no reputable bank (including solid MM) will play that game. Also, banks are already incentivized to find the highest bidder (% of transaction cost ) so not sure what you’re trying to gain from doing that.
I don’t get why you just don’t pickup the phone and contact MDs at respective firms. They’ll be happy to talk 30 min and sell their services to you and you can easily get a better understanding instead of posting threads like this on a forum with >75% college kids
You really don't want two different banks running two separate processes. You want one consistent message to potential buyers. Buyers dont want JPM and BAML contacting them with separate CIMs, models, DD docs about the same deal as that creates confusion.
Banks are already incentivized to get you highest price because they are paid a % of the transaction price.
For MM you usually have 1 sell-side banker no reason to have two. However when three are 2+ banks there is a “lead” sell-side with other banks playing a more passive role.
Naturally the bank knows that and you know that so you’ll be paying those firms less than the lead sell-side
Use a kicker and increase the percentage fee when the bank hits certain threshold valuations. Ie. 1% up to 10xEBITDA, 3% up to 12xEBITDA and 5% above for instance. That should get them motivated.
If this is sell side M&A, you want multiple advisors working with you towards the same goal, not tripping over each other.
In the MM and upwards ($200+ million EV deals), it is not uncommon to see multiple advisors (more common and more advisors the larger the deal). In a typical co-advisory relationship, as another poster already mentioned, one group takes the "lead" and one takes a supporting role. The incentives typically acknowledge and align with this (lead gets paid more/has higher earning potential).
In many sell side deals, it is actually a reverse Lehman formula for a high quality mandate. For example, you pay a retainer to the bank and the bank gets 1% of EV up to $100mm, 2.5% from $100mm to $125mm and 5% for anything above $125mm. There may be a minimum fee instead of a base percentage on the initial $100mm in the example, or other small differences.
That is a typical structure for sell side M&A, at least at the MMs that I have worked with. The purpose is to align the shareholders and investment bank(s) to drive the highest value possible.
Thanks for your valuable input. The Reverse Lehman formula makes sense for aligning interests. I will definitely ask for this structure. Since you have mentioned you have worked in various firms, what success fees did you use to charge your clients for c. $500m transactions? Is a range of 1% to 1.5% ballpark right? And were these fees "negotiable"? I am in contact with banks such as Barclays, Baird, Lazard, William Blair (i.e. not the huge ones such as Goldman and JPM who I don't think will be interested is the smallish $500m size anyway).
Any bank in the world (including Goldman and JPM) will be interested in a $500mm sell-side opportunity unless the company is a total PoS and the seller has unrealistic expectations.
Yes, that's a realistic range in terms of fee. Everything is negotiable, and it depends on how badly the bank wants the mandate, how likely the deal is to get done, etc.
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