Investment Banking: How to Protect the Success Fee

The terms of the investment banking engagement letter are critical to the protection of the issuer in any deal.  Often overlooked, however, is that the investment banker’s fee is often protected or lost by those same terms – particularly in small deals for micro-cap or under capitalized companies.  Generally, an investment bank charges two different fees: the retainer fee, which has to be paid as soon as the banker starts his assignment, and the success fee, which has to be paid when the deal is closed.

Although the investment banker could waive this retainer fee in case of a surefire deal, it is usually a lump sum and oftentimes it is paid on a monthly basis. It can also be paid out at the beginning and might eventually be credited against the success fee.

The success fee, however, is most commonly a percentage of the final deal. Depending on the bank philosophy, the fee can be declining – e.g. the Lehman system – or the opposite, progressive, which can better incentivize the banker not to hurry in the transaction and motivate him to close a deal that exceeds the initial goals.

The time to pay the success fee is also a key point to be determined by the parties. It is evident that the bank wants to be paid at deal close and it should not be a problem with a cash sale. It can be much more complicated when the deal involve other payment options such as capital adjustments or deferred payments.

Often with smaller companies, there is a primary secured lender that has significant control over the issuer.  When an investment banker is successful, and raises debt or equity, (or some combination thereof) the bank and banker are entitled to this fee.  With a secured lender that controls the issuer in some form, or has the ability to foreclose on the assets, the investment banker is at risk if the bank is not paid at closing – if the deal is funded and sometimes thereafter the issuer faces economic trouble, the investment banker’s success fee can be swallowed up by a bankruptcy or asset foreclosure. 

Thus, we propose that where practical, and where leverage allows, the investment bank insists that the secured lender or those lenders with the ability to foreclose and take the issuers assets, either indemnify, or better yet, guarantee the investment banker’s fee in the event that the issuer cannot pay it due to the actions taken by the lender.


B. Riley & Co., LLC – Investor Conference

Pastore & Dailey LLC proudly sponsored the 16th Annual B. Riley Investor Conference in Los Angeles on May 12 to the 14. Along with several other national law firms, Pastore & Dailey helped B. Riley facilitate a dialogue between issuers and investors from around the country, and helped B. Riley raise money for the Sugar Ray Leonard Foundation.

California FINRA Aribitration

The attorneys at Pastore & Dailey LLC  successfully represented Los Angeles based broker-dealer in the prosecution of a FINRA arbitration in California seeking the collection of a contractually earned broker dealer’s investment banking fee.   The issuer represented by our client claimed that the investment banking fee was not owed, but ultimately satisfied the fee obligations by transferring equity in the company to the broker-dealer as payment.

National Law Firm Pastore & Dailey Expands to Space Coast

Pastore & Dailey’s new Melbourne office, located at 7827 N. Wickham Road in Suntree, is led by attorney Rob Manning, a Brevard County native. Manning holds an AV-Preeminent Peer Review rating from Martindale-Hubbell.  “I am grateful for this opportunity to return to Brevard County, and to bring my experience and Pastore & Dailey’s resources to serve my hometown,” Manning said.

Brevard County’s growing and diversified economy made it a prime market for Pastore & Dailey’s expansion.  “When Pastore & Dailey considered expansion opportunities in Florida, the Spacecoast was at the top of the list with its growing, diverse economy, ” said Pastore & Dailey’s managing partner Joseph M. Pastore, III.

Contact Rob Manning at 321.684.7144 and via email at

Pastore & Dailey LLC is a national law firm with offices in Stamford, CT, New York, NY, Glastonbury, CT, Gainesville, FL and Melbourne, FL.  Visit the firm’s website at