Definition - What does Hello Fees mean?
Hello fees are paid by an investment banker to a potential buyer for delivering an unsolicited counter offer on a business for sale. Usually, the new buyer is sought by the investment banker after an initial offer has already been received. The purpose of seeking a new buyer is to maximize the purchase price for the seller without additional risk, since a baseline price has already been established by the original offer on hand.
Divestopedia explains Hello Fees
Hello fees are more common in the acquisition of public companies, but they can also be used in private company transactions. bankers will calculate the hello fees, and subtract them from the potential additional price premium that the business for sale may generate if another offer is received.
This is one tool that investment bankers use to maximize the purchase price. It is usually conducted under strict confidentiality, so different buyers do not know that additional solicitation is taking place. While hello fees can be useful to generate a higher purchase price, the tactic is viewed negatively by buyers. It is more transparent and efficient to conduct a controlled auction, where selected buyers are contacted and a timeline is established for the receipt of LOIs. The investment banker selects the best LOI based on price and terms, and there is no reward for other buyers who offer on the company once an LOI has been selected.