Mergers and acquisitions are one of the major businesses for investment banking firms. Investment banks can add value to an acquisition by identifying appropriate acquisition targets and helping to value the acquisition. However, there has also been a considerable criticism on the fees paid to these investment banks for the services rendered. To understand the same it is important to analyze the fee structure.

Fee contracts are an important means to control con- flicts of interest between Investment Bankers (I-Bank) known as the agents and client firms known as the principals in the business world. But in the business press and in the academic world, often the focus of debate has been on the potential for these conflicts.

In Merger and Acquisitions (M&A) Tender Offers (TO), there are four leading players: The bidding firm or the buyer firm, who is making the offer, and the target firm or the seller firm, whose shares will be purchased and the two agents representing the two sides. That is each of the principal firms, has its own I-Bank who is acting as the agent of the client firm during the TO transaction. The most important aspect of this relationship is the fee contract between the client firm and the I-Bank which ultimately incorporates the potential preferences of both the parties- the firm and the I-Bank or, the principal and the agent.

Initially, everything depends upon the form of the contract between the firm and the I-Bank which is independent of the fee incentives motivations which lead them to these contracts. This is, because in the competitive market, a good reputation (reputation definitely has a mitigating effect on the agency problem) is fundamental to survival, and quite a portion of new clients are acquired, based on referrals/word-of-mouth. But ultimately, the attributes in the contract with reference to the fee incentives has a guiding effect on the I-Bank to vary the offer attributes, transaction outcomes.

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