Investment Banking Firms and Conflicts of Interest

By: Kerri Blank, CEO, Ludlow Capital Partners, LLC

Dated: June  2025

Introduction

Sell-side investment banking firms play a critical role as advisors in mergers and acquisitions (M&A). Sell-side investment banks often face conflicts of interest that can compromise their objectivity. This article explores the nature of sell-side investment banking, outlines key sources of conflicts of interest, and discusses the sufficiency of mechanisms in place to manage or mitigate these conflicts.

What Is a Sell-Side Investment Bank?

Sell-side investment banks in the M&A context for closely-owned businesses provide strategic advice on mergers, acquisitions, divestitures, and restructurings.

Many investment banks also act as buy-side advisors representing repeat private equity and/or strategic buyers in M&A and in financing their acquisitions.

Key Conflicts of Interest in Sell-Side Firms

If an investment bank is representing a seller but is assisting the buyer in obtaining financing or has acted on behalf of a private equity firm whether as a buyer or seller, there is a potential actual or potential conflict of interest. Let me explain why there is problem for sellers. Where the investment bank is seeking to befriend a repeat private equity or strategic buyer to the detriment of the seller, we think sellers need to understand this actual or potential breach of loyalty and fiduciary duty. For example, an investment banker has been exclusively engaged by a seller in the food business in accordance with an investment banking agreement. The investment bank then introduces a private equity buyer with whom the investment bank has worked for before this transaction and will undoubtedly represent the buyer after this transaction closes. In the foregoing scenario can the investment banker act solely in the best interest of the seller? At Ludlow Capital Partners, we think absolutely not.

Our Solution

Sell-side investment banking firms are indispensable to the functioning of modern financial markets, but their business models inherently involve conflicts of interest. While regulatory reforms and internal controls have addressed many of the most blatant abuses, structural tensions remain for investment banking firms in their pursuit of profit and the provision of objective, client-centered advice. 

At Ludlow Capital Partners, we will never represent a seller in connection with a buyer with whom we have been engaged to act as a buy or sell-side investment bank unless our seller is fully informed in writing of any such potential conflict of interest and our seller agrees in writing to waive any such potential conflict of interest. We believe that as your sell-side investment banker, our sole focus should be in maximizing the value of our sellers without any regard for who the buyer or buyers may be!