What Does Investment Banker Fee Mean?
An investment banker fee is paid by a company to an investment banker for using their services with respect to M&As, fundraising or IPOs. The investment banker and the company enter into a formal agreement that contains details of services offered by the investment banker and the compensation received in return for their time and effort. Sometimes, much negotiation is involved until both parties agree that the terms are fair to each.
Divestopedia Explains Investment Banker Fee
Investment banker fees vary from company to company as well as in regards to the nature of services offered. Many investment banker fees are comprised of three components: a monthly fee, a cash fee paid at the time of closing and additional equity earned through the deal. All of these compensations can amount anywhere between three to 10 percent of the total capital raised, or the value of the M&A deal. In general, the fees tend to be greater when more money is involved, though the amount of time and effort put in by the banker also has a bearing on the rate of fees.
Sometimes, the nature of capital raised also determines the amount of the investment banker fees. For example, investment bankers charge almost two to three times more to raise equity capital compared to debt capital. In some cases, this difference can also determine the advice given by investment bankers.