

Ask YC: Average investment banker fee for an acquisition? - elsewhen

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?<p>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?
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timae
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.

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rockstar9
250 hours?

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

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timae
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!

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staunch
Around 2% and fees in the tens of thousands.

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dkokelley
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

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Prrometheus
>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>

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precipice
2-4%.

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tonystubblebine
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?

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Prrometheus
>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.

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

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

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dkokelley
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.

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breck
If you have to ask...

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

