The thesis
An adviser who represents the sale of a company while financing the buyer, publishing research on the shares involved or trading the same securities has interests that do not always coincide with the client's. Independence is not an adjective, it is a structure: one client per transaction, no proprietary product to place, and fees that come from the mandate
Where the conflict comes from
A large institution typically has several business lines around a single transaction. It may advise the seller, offer credit to the buyer to finance the acquisition, publish research on the shares involved and trade those securities on its own book. Each line has its own incentive, not necessarily aligned with the client's
The most studied case is financing offered to the buyer by the seller's own adviser. When this happens, the adviser earns more if the transaction closes with that particular buyer, and earns it even if the price is not the best available
Two cases that changed the case law
In 2011, in the Del Monte case, the Delaware Court of Chancery enjoined the vote on a sale after finding that the seller's adviser had sought to participate in financing the buyer group without proper disclosure to the board.1 The settlement that ended the case totalled US$89.4 million, of which the adviser bore US$23.7 million
In 2014, in the Rural/Metro case, the same court held the financial adviser liable for aiding and abetting the board's breach of duty, owing to similar conflicts, with damages of around US$76 million. The Delaware Supreme Court affirmed the decision in 2015.2
What the two cases established is that the adviser's conflict is not a private matter between adviser and client. It taints the board's decision and exposes those who decided on the basis of that advice
The conflict no one calls a conflict
Not every conflict involves financing. The fee structure itself creates incentives. An adviser paid only on closing has reason to push the transaction forward even when the client's best course would be not to sell, or to wait. An adviser with several mandates in the same sector may be drawn to favour one client over another
The useful question, therefore, is not whether the adviser is ethical, but whether the structure in which it operates places it on the same side as the client in every relevant situation
What makes an adviser independent
Independence can be verified on four objective points. One client per transaction: whoever advises the seller does not represent the buyer, neither in that process nor in any other in the same sector while the mandate runs. No proprietary product to place: no credit, no fund units, no trading desk dealing in the securities
Fees that come from the mandate, designed to reward the client's outcome and not merely the closing. And written disclosure of any relationship that could give rise to a conflict, before the engagement letter is signed
How fees should be designed
The best-aligned structure combines a fixed structuring fee with a success fee that rises with the price. A ratchet fee, in which the percentage increases above a given value threshold, makes the adviser earn more precisely when the client earns more, and ceases to reward closing at any price
Two safeguards complete the design. The fee should not depend on who the buyer is, so as not to create a preference for any one of them. And the fixed fee must be sufficient for the adviser to be able to recommend not selling without losing the engagement, because that is the moment when independence is tested
Independence and scale
There is a genuine trade-off between the two models. The large institution has a balance sheet, global reach and the capacity to finance the transaction itself. The independent firm has none of this, and it is precisely that absence that leaves it free of conflict
The choice depends on the transaction. Where financing is decisive and price is little contested, a bank's balance sheet may be worth the conflict. Where price is the central variable and the client needs someone entirely on its side, independence is worth more than a balance sheet
Questions to ask your adviser
Do you finance, directly or indirectly, any of the potential buyers? Are you currently advising another company in my sector? How is your fee calculated, and what happens to it if I decide not to sell? Will you deliver an opinion on the price, and who signs it?
Any evasive answer to these questions says more than an entire presentation
Notes
Tiago H. dos Santos, partner in charge, Revenaz Assessoria, September 2026