Ask YC: Average investment banker fee for an acquisition?

https://news.ycombinator.com/item?id=192585

by elsewhen • 18 years ago

29 15 18 years ago

news.ycombinator.com

what percentage do investment bankers charge for handling an acquisition? i know it depends on the specific deal, but is there a ballpark figure that these firms charge?

take, for example, the recent $25 million acquisition of arstechnica; how much would an investment bank that was involved in the deal expect to make?

bigtoga• 18 years ago

No clue - upmodding so I can save this though and hopefully someone will answer it (so that I can come back and see!)

breck• 18 years ago

If you have to ask...

(no idea, guessing 2-10% depending on deal size)

mixmax• 18 years ago

Way too much - it's an industry driven by greed.

dkokelley2• 18 years ago

My initial reaction was to downvote this (I didn't though), but then I had an interesting question: which industries aren't driven by greed?

From wikipedia: Greed is the selfish desire for or pursuit of money, wealth, power, food, or other possessions, especially when this denies the same goods to others.

While the last part about denying the same goods to others presumes zero sum (which is debatable in the investment industries), I see nothing wrong with the rest of the definition being applied to any other capitalistic venture.

timae3• 18 years ago

I work in a similar field. Among their staff levels, ibankers probably have an average rate about $400-$450/hour. To do a deal on the small side (like the ars deal), I would estimate roughly 250 hours. So, somewhere in the neighborhood of $100k.

rockstar9• 18 years ago

250 hours?

Considering an analyst works about 80-100 hours a week, this deal would be done in 3 weeks. ha.

timae3• 18 years ago

You're right. The hours are probably way off. I do financial due diligence for M&A. I'm on a deal for the next couple weeks for a software company in this price range and it will take us a little under 250 hours to complete a pretty thorough analysis of the target from a deal perspective.

Although we're only around towards the end of the transaction, bankers are involved from the beginning. They typically get an offering memorandum together, help the company organize their financial data, contact potential buyers and do anything else necessary to facilitate a smooth transaction acting on the seller's behalf.

As far as fees go, we're by the hour, but bankers may very well get a % of the total deal. I certainly don't make ibanker money, but there wouldn't be anytime for my hacking side projects if I did!

timae3• 18 years ago

Total advisory fees for bankers in the last two quarters, as well as total deal size, are listed in the article below. In each case, it works out to be about 1.3% of total deal value.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aGDI...

precipice• 18 years ago

2-4%.

nickb• 18 years ago

That seems about right!

Also, it depends on a size of a deal and also on the attractiveness of the business and the market.

tonystubblebine• 18 years ago

Are they the only external people you need to be involved to make a deal like this happen? Do the costs change if the investment bank is involved in finding the deal (as TechCrunch reports happens all the time)? Are they useful at all in the negotiation or are they just paper pushers?

I had an investment banker contact me early in the year just to "start a relationship in case I ever needed help with fundraising or M&A." Is it worth meeting with these people?

Prrometheus2• 18 years ago

>Are they the only external people you need to be involved to make a deal like this happen?

Your banker should be the only third-party you need when searching for bidders. When bids start to come in, you will need lawyers, accountants, and etc., but your banker will help you find and manage these relationships.

Your job during a deal is to discuss and present the business. The banker does the rest.

However, if you have a small private business and you already have a bid that you like, the cost of engaging a banker is likely to outweigh any benefit that they can bring to a transaction.

>Do the costs change if the investment bank is involved in finding the deal?

Not in my experience. Their reward for finding a transaction for you is that they get paid. Keep in mind that your banker will always be biased in favor of making a deal happen. In my experience, we usually charged a small retainer fee to encourage the Company to do a deal as well.

>Are they useful at all in the negotiation or are they just paper pushers?

Your banker can act as a go-between, insulating you from negotiation. They will do research to try to establish what a "fair" price range would be, both for your benefit and for use in negotiation. They also are capable of bringing more bidders into the process, putting pressure on your most interested buyer.

Of course, they are far more business savvy than you are. This can work against you when they are negotiating the terms for their services. On the other hand, they usually get paid based on a percentage of the deal price, so they are incented to make it as high as possible.

>I had an investment banker contact me early in the year just to "start a relationship in case I ever needed help with fundraising or M&A." Is it worth meeting with these people?

Sure. Good bankers will try to get your business by giving you a lot of information about the market, and information never hurt.

If they know you, then they might mention your name when they are talking to firms looking to do an acquisition in your business sector.

Of course, if you're not established and you don't have a well-known name and these guys are approaching you, then they are probably not good bankers.

staunch• 18 years ago

Around 2% and fees in the tens of thousands.

dkokelley2• 18 years ago

So far, I see 2 answers, 1 that puts the earnings for the banker on this deal at $100,000, and another that puts it at $500,000 to $1,000,000.

Does anyone have a number from actual experience?

On a side note, now that I've seen some numbers I'm interested in learning more about becoming an investment banker :P

Prrometheus2• 18 years ago

>On a side note, now that I've seen some numbers I'm interested in learning more about becoming an investment banker :P

This was my take on it: http://news.ycombinator.com/item?id=179097

Ask YC: Average investment banker fee for an acquisition?

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