Lehman Formula

The Lehman Formula is a tiered commission structure historically used by investment banks and M&A advisors to calculate success fees on transaction values. The original formula paid 5% on the first million, 4% on the second million, 3% on the third million, 2% on the fourth million, and 1% on amounts above $4 million.

In practice, the Lehman Formula has many variations. The classic Lehman Formula charges 5% of the first $1 million, 4% of the second million, and so on down to 1%; "Double Lehman" starts at 10% and falls to 2% (Firmex, Global M&A Fee Guide 2024-25). In the same survey, 41% of middle-market firms used a Lehman-style declining rate, 27% a flat percentage and 21% an accelerator that raises the rate above a target price. For smaller Main Street sales, brokers more often quote a single commission percentage; the International Business Brokers Association (IBBA), a US-based association, says business broker commissions on Main Street sales can range from 8% to 15% of the final sale price and may be subject to an agreed minimum (IBBA, Your Guide to the Business Brokerage Profession, 2021).

The Lehman Formula is used as a conceptual reference point in advisor engagement negotiations, not as a fixed standard. Actual fee structures vary by advisor, deal size, transaction complexity, and market conditions.

See also: Success Fee, Retainer, M&A Advisor, Business Broker, Engagement Letter.