Hire Banks to Look After Your Banks - Bloomberg

Hire Banks to Look After Your Banks - Bloomberg:

Meta-banking

The basic business of investment banking is advising companies on big financial transactions. If you are the chief executive officer of a big company, and the CEO of another big company calls you up and offers to buy your company, you will hire an investment bank or two to help you evaluate the offer and make sure you get the best deal. Or if your company wants to raise a billion dollars of outside financing, you will hire an investment bank or two to help you figure out the best ways to do that and to negotiate the best price with investors. The banks are repeat players; they know how this stuff works; they have negotiation skills and market knowledge and specialized expertise in structuring transactions. 

The investment banks will generally charge a fee that is large compared to, like, the median family income, but small—on the order of one percent 1 —compared to the size of the deal. If you are raising a billion dollars, paying $10 million for advice just does not feel that material, and you may not be inclined to sweat the details that much. If the bankers can get you a meaningfully higher price on a billion-dollar transaction, it’s silly to quibble with them over a million dollars of fees.