Guide
The tail clause: paying a fee after the mandate ends
Updated
Sellers skim the tail clause, yet it most often produces a dispute. It keeps the success fee alive after the mandate ends, and its fairness turns on two details.
Talk to a specialist Lehman and Double Lehman at your deal size, with the minimum fee, the retainer credit and the tail that decide what you actually pay.
Email me this result
We will send you these figures and a link back to them. One email, nothing else unless you tick the box.
How this calculator works
- The Lehman formula and its Double Lehman variant are American conventions, not statutory rates: 5-4-3-2-1 percent on each successive million of deal value, and 10-8-6-4-2 percent on the doubled scale. Nothing obliges an advisor to use either, and larger deals are routinely quoted on bespoke scales that fall well below both.
- A MINIMUM FEE overrides the scale entirely below a certain deal size, and on small transactions it is usually the number that actually applies. Enter yours: on a $1,500,000 deal a $150,000 minimum is a 10 percent effective rate however gentle the published scale looks.
- Retainers may or may not be credited against the success fee, and the difference is the whole retainer. Ask which, in writing, before signing.
- This calculator prices the ADVISOR's fee only. Legal, accounting, quality of earnings and escrow costs sit outside it. The SBA's guidance on preparing a sales agreement tells sellers to note all adjustments, broker fees and any other aspects relevant to the terms.
- No US tax treatment is modelled. How a fee interacts with your proceeds depends on the deal structure. The IRS treats an asset sale as a transfer of separate assets requiring residual-method allocation. A stock sale usually realises capital gain or loss. That is a question for your own tax adviser, not for a calculator.
What a tail is for
It stops a seller terminating the mandate the week before signing and closing with a buyer the advisor introduced. Without one, every mandate would carry that risk and no firm could invest in a process.
So a tail is not predatory. It is the mechanism that makes a success-fee model workable, and a seller asking for none at all is asking the advisor to work uninsured.
The two details that decide fairness
Length, and scope. A tail of twelve months is ordinary; twenty four is long; anything open-ended should be refused. The scope matters more: a fee should be payable on buyers the advisor actually introduced, named on a written list delivered at termination, not on any buyer in the world.
The named-list version is the single most valuable amendment a seller can make to a standard engagement letter. It is usually accepted, because a firm that ran a real process can produce the list easily.
How it interacts with a second advisor
If you terminate and appoint someone else, the tail can leave you owing two success fees on one transaction. That is the scenario the named list prevents: the second advisor's buyers are not on it.
Before appointing a replacement, read the previous tail and hand the list to the new firm. A good one will ask for it unprompted.
Where the deal closes late
Processes stall and restart. A buyer who passed in March can return in November with new financing. Whether that is a tail buyer or a fresh introduction is exactly the kind of question that gets expensive.
Settle it at signing: agree that a buyer's inclusion on the list expires with the tail, and that a re-approach after expiry is not covered. Both sides can live with that, and neither can live with arguing it at completion.