M&A Intermediary Compensation: The Lehman Formula Explained


It is generally in the best interest of a business owner or buyer not to tackle an M&A deal alone. Instead, many choose to seek counsel from an M&A intermediary. This experienced person can help negotiate to the price desired and sort out the more technical aspects of the process.

How do you know if you are paying the correct price for your intermediary’s services? Typically, M&A advisors follow the Lehman Formula in order to make compensation consistent and straightforward.

This formula is a payout structure that is used often in investment banking. The formula works in a manner that gives incentive for the intermediary to find the best deal possible, because the higher the payout the more compensation the firm receives.

The formula is as follows:

5% of the first million of the transaction value

4% of the second million

3% of the third million

2% of the fourth million

1% of anything higher than four million

Not all M&A firms follow the Lehman Formula, but most follow at least some variation of this scale. It is important to understand the Lehman Formula so that you can better familiarize yourself with the types of rates that you will be dealing with when looking to hire an intermediary.

To learn more about M&A deals or to consult with a professional advisor in complete confidence, contact George & Company today.