Series 79: Engagement Letter

Engagement Letter

The engagement letter sets out the critical terms of the relationship between the selling customer and the investment bank. In most cases, the investment bank will have a template of an engagement letter containing its standard terms. The banker will typically prepare a draft engagement letter based on the standard template, which serves as the basis for negotiation with the customer. The major elements of the engagement letter are usually negotiated, if at all, directly between the seller and the banker. (Specific wording and detailed points are usually negotiated between the parties’ attorneys.)

The engagement letter specifies the following elements:

• • Scope of the engagement. The engagement letter should contain a specific description of what transactions are part of the engagement, and thus trigger the bank’s right to be paid. Must the entire business be sold (if that is the goal), or will the bank be paid if a buyer purchases only some of the assets? What if the se