How Investment Bankers Help With Startup Acquisitions

For seller representation, investment bankers analyze key market trends to track the expected market price of a business. With their wealth of experience, investment bankers know which acquirers to approach. They will set out a panel of businesses that have the potential to acquire your startup. Once they’ve identified interested parties, investment bankers can help facilitate contact between a target business and potential acquirers.

This ensures an efficient information flow between these parties. With the help of investment bankers, any discussion between your firm and a buyer will be more strategic and fruitful, allowing you to have a razor-sharp focus to ‘sell’ your business.

Essentially, the services of an investment banker in the acquisition process aim to eliminate any negative information asymmetries. Through accurate valuations of your company’s worth and keen knowledge of how to negotiate deals, investment bankers can make sure you don’t go into any acquisition proposal blindly. Just as Alejandro Cremades opines, you’ll also need the services of a startup M&A advisor who can recommend tactics and advise startups on acquisitions.

Advice and Guidance Through Acquisition Deals


Investment bankers can aid businesses in drafting a compelling investment thesis, gathering key points and strengths of your business and its potential once acquired. Investment banks have massive databases of historical transactions and therefore know the multiples seen in comparable businesses.

They will also have a wide knowledge of how these businesses went about getting acquired and therefore can provide bespoke advice and guidance for your specific business.

These investment banks can help facilitate a formal bid process for your startup and invite potential acquirers to bid for your firm. Suppose you receive an acquisition proposal from an interested party and you don’t seek advice from an investment banker. In that case, you may be missing out on competitive bids from other potential acquirers.

Investment bankers will circulate any investment thesis to all key probable buyers. Their deep industry knowledge will also be useful in selecting the right bid and managing the risk of turning down others.

Investment banks can assist with due diligence, helping dive into the target company’s financials. With this information, sell-side investment bankers can help a company assess any acquisition offers.

Protect your business


For many, a startup is a passion project. Investment bankers understand that you may have vested interests in the continued success of the target business. A reason a potential buyer could be interested in acquiring your firm could be to eliminate competition, break up your startup and absorb your assets.

An investment banker can help predict how a buyer may handle your business. This may be achieved through assessing that company’s historical behavior with acquisitions or by identifying any similar or competing services and products provided by this firm.

If the interested party already has operations in your industry and provides a similar product, an investment banker can help approach other potential buyers who are less likely to have hostile ambitions.

Investment Bankers may approach you


Investment bankers don’t just rely on potential buyers or sellers to contact them and ask for their services. The key role investment bankers play is to monitor the market and find potential acquisition and merger opportunities. The reason for this is to source their own deals and find ways of realizing serious profit potential for their clients.

How do Investment Bankers make money from acquisitions?


There are few ways investment bankers monetize their financial services during acquisitions. These methods depend on the investment bank’s size, the size of the proposal, the pedigree and experience of the investment banker, and the level of involvement the investment bankers have in the process.

Some investment bankers may require a retainer known as an engagement fee. Above this, the investment banker will seek to walk away with a percentage of the deal.

The Lehman formula was developed by Lehman Brothers to determine the commission on investment banking. Some key investment banks use this formula to determine their fees.

The original Lehman formula runs on a 5-4-3-2-1 ladder format. This means the investment banker charges:

  • 5% of the first $1 million of the transaction
  • 4% of the second $1 million
  • 3% of the third $1 million
  • 2% of the fourth $1 million.
  • 1% of everything above $4 million.

This formula was derived in 1960 and given inflation since then, many turn to multiples of this formula to work out investment banking fees in the modern-day.

A common multiple is the double Lehman:

  • 10% of the first $1 million of the transaction
  • 8% of the second $1 million
  • 6% of the third $1 million
  • 4% of the fourth $1 million.
  • 2% of everything above $4 million.

For example, for an acquisition deal of $650 million, a Lehman fee would stand at around $6.6 million, whereas a double Lehman would be $13.2 million. This, on paper, seems like a large amount to pay for services.

However, given their vital role in hunting, securing, valuation and negotiation during the acquisition process, the added value of their services far exceeds their fee.



To recap, investment banking holds a key role in handling any acquisition, and their services are pivotal for navigating mergers and acquisitions: both for buyers and sellers.

Here’s a short summary of their roles during the acquisition process:

  1. Develop acquisition and exit strategy. They develop an investment thesis and prepare to pitch to potential acquirers.
  2. Identify potential acquirers and participate in initial due diligence
  3. Perform an accurate and detailed valuation of your company, assessing market value and potential value growth given.
  4. Initiate negotiations with potential buyers and facilitate detailed and fruitful conversations between you and acquirers.
  5. Assist with due diligence
  6. Finalize the deal and settlement of the final terms

Investment bankers can help with ensuring fair terms between the parties of a transaction. In return, investment bankers usually take a fee based on a percentage of the transaction.

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