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Guess Whether I Will Get a Referral Fee For This (1 Viewer)

If so, how much?

  • Total voters
    55
chet

chet

Footballguy
I introduced an private equity firm to an investment bank. The PE firm selected the bank to take one of their companies public. I am asking the bank for a referral fee. Guess whether they will pay me and how much. I think the IPO will be ~$50MM.

 
Dear XXXXXXXX-


XXX XXXX recently informed me that XXXXX was selected to act as lead underwriter in XXXXX's IPO. Congratulations.

I am wondering if I qualify for a referral fee as I introduced XXXXXX to you back in early February. Please advise.
 
Tough one - No fee letter agreed upon....I would say there is a lower likelihood. Hopefully there will be future business for you down the road.

 
Standard practice up to 15% finders/referral fee. 10% has always been the norm. Should/can be split between the parties you put together. I would do all you can to make them aware of this. IMO. I'm actually more aware of the finders fee & not sure how this stands up vrs. the referral fee.

 
irishidiot said:
Standard practice up to 15% finders/referral fee. 10% has always been the norm. Should/can be split between the parties you put together. I would do all you can to make them aware of this. IMO. I'm actually more aware of the finders fee & not sure how this stands up vrs. the referral fee.
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10-15% on a $50MM deal, what world do you live in? My firm is lucky to collect 5-10 bps for underwriting the deal.

 
sbonomo said:
irishidiot said:
Standard practice up to 15% finders/referral fee. 10% has always been the norm. Should/can be split between the parties you put together. I would do all you can to make them aware of this. IMO. I'm actually more aware of the finders fee & not sure how this stands up vrs. the referral fee.
Click to expand...
10-15% on a $50MM deal, what world do you live in? My firm is lucky to collect 5-10 bps for underwriting the deal.
Click to expand...
Equity IPO. Total underwriting fees will be about 6%.

 
Not looking good, sadly. The IPO is actually going to be $100mm and the company I referred it to will be the sole underwriter which is a little strange IMO.

Here's his response:

[SIZE=11pt]Apologies for the delay in getting back to you. [/SIZE]

[SIZE=11pt]Firstly, thank you for connecting us with xxxx earlier this year. We participated in the company’s adviser selection process and are now looking forward to working with the company and of course xxxxx.[/SIZE]

[SIZE=11pt]I am not familiar with referral fee arrangements - to be honest, I don’t believe we typically pay them for this form of introduction. However I will raise this internally (with senior management and compliance) and revert back to you with a definitive response.[/SIZE]
Click to expand...
It's a little confusing that on one hand, he's not familiar with referral fee arrangements but on the other, he doesn't think they pay referral fees for "this form of intro".

My response:

Thanks for getting back to me.


I must say that I am more than a little surprised to hear that you're not familiar with referral fee arrangements. Having worked at Goldman for almost 10 years and Merrill for almost 15 years, I will tell you that fees for referrals that consummated in business for the firm were paid regularly both to internal employees and external sources. For a referral that led to the firm leading an IPO, a fee of 10% of the revenue generated by the IPO was typical. We recognized that these introductions were very valuable and I expect your firm will do the same.
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Waiting for the reply back... "you ain't Goldman or Merrill, chief."

Sorry, I don't have a clue what to expect here, chet. :shrug:

 
Dear Sir,

In light of your complete and utter lack of understanding of how the business world works, I have no choice but to unrecommend you to the private equity firm.

Good luck keeping the business!

PS: I am denying involvement in advance in the stinking pile of flaming excrement that will no doubt arrive on your doorstep.

 
Am I reading this right. Couple hundred grand for introducing people and you ask them in a quick email? Pretty nice gig right there.

 
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The General said:
Am I reading this right. Couple hundred grand for introducing people and you ask them in a quick email? Pretty nice gig right there.
Click to expand...
They wouldn't be doing the business if I hadn't introduced them and I don't get paid by the hour.

 
chet said:
The General said:
Am I reading this right. Couple hundred grand for introducing people and you ask them in a quick email? Pretty nice gig right there.
Click to expand...
They wouldn't be doing the business if I hadn't introduced them and I don't get paid by the hour.
Click to expand...
Makes sense. Just wondering why you don't have a referral agreement? Seems like they would have readily signed that at a point where you could have stopped or interfered with any ensuing transaction, incentivizing them to ink it.

 
Aerial Assault said:
chet said:
The General said:
Am I reading this right. Couple hundred grand for introducing people and you ask them in a quick email? Pretty nice gig right there.
Click to expand...
They wouldn't be doing the business if I hadn't introduced them and I don't get paid by the hour.
Click to expand...
Makes sense. Just wondering why you don't have a referral agreement? Seems like they would have readily signed that at a point where you could have stopped or interfered with any ensuing transaction, incentivizing them to ink it.
Click to expand...
Should have gotten one in hindsight.

 
I am preparing for the Heisman handoff that I feel will be coming from them. I had some time this am so I put together the first draft of my anticipated response:

Your refusal to pay a referral fee for a bona fide introduction is a prime example of narrow-minded and short term thinking. I have no doubt that Goldman, Merrill or any of the other first tier banks would be happy to pay for such an introduction but you work for XXXXXX which is, at best, a third-tier bank with no hope of ever becoming even a second tier institution. Because of its station, XXXXXX is forced to hire sub par people, like you, because the better banks take the better people. You and your bottom of the barrel co-workers continuously make questionable decisions which ensures your vicious cycle of mediocrity which in turn will damn you, like Willy Loman, to an existence of quiet desperation.


I am hopeful our paths never cross again,
Click to expand...
This is going to someone in England which is why I used station etc.


 
So you you want a fee for referring someone to a third-tier bank suck-fest?

That's right. You referred a good client to a third-tier suck-fest. On second thought, I'd take the third-tier comment out of it. I'm usually not the one to be brought in when diplomacy is called for, but I think I would find a way to word the letter so that if that letter gets handed around anywhere, you don't look like a sap for writing it.

So that's the letter you WANT to write. And you probably never do want to do business with them again... but I wouldn't close the door to yanking their chain again, if I were you, so I wouldn't totally alienate them. Revenge is a dish best served cold.

my letter might look something more like this:

To say I am disappointed in your company's decision not to compensate me for a referral from which it profited would be a bit of an understatement. When I worked for top-tier investment banks, we routinely paid such fees not only as a matter of professional courtesy, but also because we recognized the value such referrals brought to us and we wanted to 'keep the pump primed', as it were.

In our future dealings I will certainly be more cautious in dealing with less than top-tier institutions such as yours.

 
Last edited by a moderator:
chet said:
I am preparing for the Heisman handoff that I feel will be coming from them. I had some time this am so I put together the first draft of my anticipated response:

Your refusal to pay a referral fee for a bona fide introduction is a prime example of narrow-minded and short term thinking. I have no doubt that Goldman, Merrill or any of the other first tier banks would be happy to pay for such an introduction but you work for XXXXXX which is, at best, a third-tier bank with no hope of ever becoming even a second tier institution. Because of its station, XXXXXX is forced to hire sub par people, like you, because the better banks take the better people. You and your bottom of the barrel co-workers continuously make questionable decisions which ensures your vicious cycle of mediocrity which in turn will damn you, like Willy Loman, to an existence of quiet desperation.


I am hopeful our paths never cross again,
Click to expand...
This is going to someone in England which is why I used station etc.
Click to expand...
could use, I think, a couple more commas in there

 
chet said:
johnnycakes said:
So you you want a fee for referring someone to a third-tier bank suck-fest?

That's right. You referred a good client to a third-tier suck-fest. On second thought, I'd take the third-tier comment out of it.
Click to expand...
Why, GB?
Click to expand...
I just think the tone of your letter reflects poorly on you. You have to be very careful about writing something like this... better to settle down some perhaps rather than hitting send while you're all steamed up. Post the letters you want to send here... then send the one that tells them what's what without making it look like you're whining or were in any way "dumb", for lack of a better word. I think you were relying on professional courtesy... I understand that. The people with whom you are dealing don't understand professional courtesy... I'd kind of talk down to them that way like, "it's all right... you guys are errand boys sent by grocery clerks whose career ambition is to be store manager. The notion of professional courtesy is as alien to you as playing by the rules is to Bill Belichick".

 
Last edited by a moderator:
johnnycakes said:
chet said:
johnnycakes said:
So you you want a fee for referring someone to a third-tier bank suck-fest?

That's right. You referred a good client to a third-tier suck-fest. On second thought, I'd take the third-tier comment out of it.
Click to expand...
Why, GB?
Click to expand...
I just think the tone of your letter reflects poorly on you. You have to be very careful about writing something like this... better to settle down some perhaps rather than hitting send while you're all steamed up. Post the letters you want to send here... then send the one that tells them what's what without making it look like you're whining or were in any way "dumb", for lack of a better word. I think you were relying on professional courtesy... I understand that. The people with whom you are dealing don't understand professional courtesy... I'd kind of talk down to them that way like, "it's all right... you guys are errand boys who report to grocery clerks whose career ambition is to be store manager. The notion of professional courtesy is as alien to you as playing by the rules is to Bill Belichick".
Click to expand...
Fair point. It's not going out anytime soon--at least until I receive a definitive response from them.

 
This sounds like one of those instances where it's so standard to pay a referral that Chet didn't really feel worried not having a referral agreement in place.

We work with brokers/finders all the time and in our industry if someone didn't pay a referral fee (whether or not an agreement existed) they'd never get referred again.

 
johnnycakes said:
So that's the letter you WANT to write. And you probably never do want to do business with them again... but I wouldn't close the door to yanking their chain again, if I were you, so I wouldn't totally alienate them. Revenge is a dish best served cold.

my letter might look something more like this:

To say I am disappointed in your company's decision not to compensate me for a referral from which it profited would be a bit of an understatement. When I worked for top-tier investment banks, we routinely paid such fees not only as a matter of professional courtesy, but also because we recognized the value such referrals brought to us and we wanted to 'keep the pump primed', as it were.

In our future dealings I will certainly be more cautious in dealing with less than top-tier institutions such as yours.
Click to expand...
:goodposting:

I'd perhaps reword the close to the first paragraph to express something along the lines of "keeping this short-sighted policy in mind when considering where to direct future referrals." Essentially a politically correct "If you don't scratch back, I'm done scratching".

 
[icon] said:
johnnycakes said:
So that's the letter you WANT to write. And you probably never do want to do business with them again... but I wouldn't close the door to yanking their chain again, if I were you, so I wouldn't totally alienate them. Revenge is a dish best served cold.

my letter might look something more like this:

To say I am disappointed in your company's decision not to compensate me for a referral from which it profited would be a bit of an understatement. When I worked for top-tier investment banks, we routinely paid such fees not only as a matter of professional courtesy, but also because we recognized the value such referrals brought to us and we wanted to 'keep the pump primed', as it were.

In our future dealings I will certainly be more cautious in dealing with less than top-tier institutions such as yours.
Click to expand...
:goodposting:

I'd perhaps reword the close to the first paragraph to express something along the lines of "keeping this short-sighted policy in mind when considering where to direct future referrals." Essentially a politically correct "If you don't scratch back, I'm done scratching".
Click to expand...
You guys make valid points. There's something to be said about taking the high road.

 
I'd revise the email to note that you are responsible for the NYSE tech disruption, and next time, you'll go after their investments directly if they don't pass along the fee.

 
How much of a referral fee do I get for telling Chet to have a referral fee agreement in place prior to making a referral next time?

 
chet said:
Not looking good, sadly. The IPO is actually going to be $100mm and the company I referred it to will be the sole underwriter which is a little strange IMO.

Here's his response:

[SIZE=11pt]Apologies for the delay in getting back to you. [/SIZE]

[SIZE=11pt]Firstly, thank you for connecting us with xxxx earlier this year. We participated in the company’s adviser selection process and are now looking forward to working with the company and of course xxxxx.[/SIZE]

[SIZE=11pt]I am not familiar with referral fee arrangements - to be honest, I don’t believe we typically pay them for this form of introduction. However I will raise this internally (with senior management and compliance) and revert back to you with a definitive response.[/SIZE]
Click to expand...
It's a little confusing that on one hand, he's not familiar with referral fee arrangements but on the other, he doesn't think they pay referral fees for "this form of intro".

My response:

Thanks for getting back to me.


I must say that I am more than a little surprised to hear that you're not familiar with referral fee arrangements. Having worked at Goldman for almost 10 years and Merrill for almost 15 years, I will tell you that fees for referrals that consummated in business for the firm were paid regularly both to internal employees and external sources. For a referral that led to the firm leading an IPO, a fee of 10% of the revenue generated by the IPO was typical. We recognized that these introductions were very valuable and I expect your firm will do the same.
Click to expand...
Click to expand...
those are the breaks.

 
chet said:
I am preparing for the Heisman handoff that I feel will be coming from them. I had some time this am so I put together the first draft of my anticipated response:

Your refusal to pay a referral fee for a bona fide introduction is a prime example of narrow-minded and short term thinking. I have no doubt that Goldman, Merrill or any of the other first tier banks would be happy to pay for such an introduction but you work for XXXXXX which is, at best, a third-tier bank with no hope of ever becoming even a second tier institution. Because of its station, XXXXXX is forced to hire sub par people, like you, because the better banks take the better people. You and your bottom of the barrel co-workers continuously make questionable decisions which ensures your vicious cycle of mediocrity which in turn will damn you, like Willy Loman, to an existence of quiet desperation.


I am hopeful our paths never cross again,
Click to expand...
This is going to someone in England which is why I used station etc.
Click to expand...
Guess you wont be doing business with them after this. Odd they didn't at least give you something.....oh well, live and learn i guess.

 
jon_mx said:
How much of a referral fee do I get for telling Chet to have a referral fee agreement in place prior to making a referral next time?
Click to expand...
Probably about as much as Those responsible for sacking the people who have just been sacked have been sacked.

 
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