Guide
The Lehman formula, and why Double Lehman replaced it
Updated
The Lehman formula is the oldest fee convention in American M&A, designed for far larger deals. Why it got doubled explains most of how sell-side fees work below $50 million.
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.
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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.
The original ladder
Five percent of the first million of deal value, four percent of the second, three of the third, two of the fourth and one percent of everything above.
It is a ladder, not a flat rate. The effective percentage falls as the deal grows: 5.00% on a $1M transaction, 3.00% at $5M, 2.00% at $10M and 1.40% at $25M.
That declining curve is the point. A larger deal is not proportionally more work. A flat scale would price a $25M mandate at $1.25M, for a process not much longer than a $5M one.
Why the Lehman scale was doubled into Double Lehman
The scale was written when a million dollars was a large transaction. Applied unchanged to a modern $2M business sale, it produces a $90,000 fee for a full sell-side process. That covers buyer research, an information memorandum, management meetings, several rounds of bids and months of diligence support. No firm can staff that properly at that price.
So the lower middle market moved to Double Lehman, which is the same ladder at ten, eight, six, four and two percent. It is exactly twice the original at every deal size, which is why an advisor quoting 'the Lehman scale' without saying which one has told you almost nothing.
Where both stop applying
Above roughly $25M, neither ladder is what firms actually quote. Fees at that size are negotiated as a bespoke scale. It often has a lower base percentage and an incentive tier paying a higher rate on value above a target price. That aligns the advisor with the outcome in a way a flat ladder cannot.
Below about $2M, the ladder is usually irrelevant for the opposite reason: a minimum fee has taken over, and the scale is decoration.
What to ask when you are quoted a scale
Which ladder, on what value, and with what minimum. The second catches people out. A fee on enterprise value and one on equity value differ whenever the business carries debt or surplus cash, and the engagement letter should say which.
Then ask what happens to the fee if the deal is restructured from an asset sale to a stock sale. On its face that is about tax. Underneath, it is about the advisor's own regulatory position: brokering a stock sale is a securities transaction and brokering an asset sale is not.