Lehman Formula vs Capped Success Fee

The Lehman formula is a tiered M&A advisory fee schedule. A capped success fee is simpler: a stated percentage, subject to a maximum dollar amount. For business owners, the right comparison is not the formula name. It is the total dollars payable, when they are payable, and whether the advisor still provides valuation, CIM, financial model, investment story, targeted buyer outreach, negotiation, diligence, and closing support.

Lyndon Advisory charges 2% of enterprise value, capped at US$300,000, with no retainer, monthly fee, upfront fee, or expense recharge.

For the full owner sale process, read How to Sell a Business.

Quick Comparison

Fee structure	How it works	Seller issue
Original Lehman	5%, 4%, 3%, 2%, then 1% by US$1M bands	Often less relevant for modern mid-market deal sizes
Modified Lehman	Same descending logic, often by US$10M bands	Can create high dollar fees on US$25M-US$100M deals
Double Lehman	Doubles the original bands	Can be expensive for smaller owner-led transactions
Capped success fee	Stated percentage with a maximum dollar fee	Easier to model, but scope still matters
Retainer plus formula	Monthly fee plus success fee	Seller funds process before closing

For exact definitions, read the Lehman Formula glossary and M&A Advisor Fee Schedule.

Worked Examples

The most important step is translating every proposal into dollars.

Enterprise value	Modified Lehman example	Lyndon capped success fee	Difference before retainers
US$10M	US$500,000	US$200,000	US$300,000
US$25M	US$1,050,000	US$300,000	US$750,000
US$50M	US$1,500,000	US$300,000	US$1,200,000
US$100M	US$2,000,000	US$300,000	US$1,700,000

These examples use a common modified Lehman pattern: 5% of the first US$10M, 4% of the next US$10M, 3% of the next US$10M, 2% of the next US$10M, and 1% above US$40M. Your engagement letter may differ, so calculate the actual schedule rather than relying on the label.

For a downloadable version of these scenarios, use Lyndon’s M&A Advisory Fee Comparison Scenarios 2026 and CSV dataset.

Corporate Finance Institute’s Lehman Formula overview explains the original and modified structures. Investopedia’s Lehman Formula guide also notes that the formula has been adapted over time as deal sizes changed.

Why The Cap Matters

Without a cap, a success fee keeps rising with enterprise value even when the advisor’s incremental work may not rise proportionately.

Deal size	Lyndon fee	Effective rate
US$10M	US$200,000	2.00%
US$25M	US$300,000	1.20%
US$50M	US$300,000	0.60%
US$100M	US$300,000	0.30%

That does not mean sellers should choose the lowest fee blindly. A low fee is only good if the advisor still does the work that protects value. Read Lower M&A Advisory Fees Without Lower Quality for that distinction.

What To Check In A Lehman-Style Proposal

Term	Seller question
Formula bands	Are the bands US$1M, US$5M, US$10M, or another scale?
Cap	Is there a maximum dollar fee?
Minimum fee	Does a floor override the formula on smaller deals?
Retainer	Is it credited against the success fee, or paid in addition?
Expenses	Are travel, data room, research, and admin costs recharged?
Tail	Which buyers create fee exposure after termination?
Fee basis	Is the fee based on enterprise value, equity value, debt assumed, earnout, rollover, or total consideration?
Payment trigger	Is payment due only at closing, or earlier at signing or LOI?

Axial’s 2026 M&A Fee Guide is useful because it shows how lower-middle-market advisors vary across engagement fees, success fees, capital raising mandates, and expense reimbursement. The practical takeaway is simple: compare all-in economics, not only the headline percentage.

Scope Still Matters

A capped fee is not enough if the advisor removes the work that creates buyer confidence.

Workstream	Why it matters
Valuation	Frames buyer expectations before offers arrive
Teaser and CIM	Gives buyers a professional basis to underwrite interest
Financial model	Supports EBITDA normalization, growth assumptions, and diligence
Investment story	Explains strategic value and buyer-specific upside
Buyer map	Prevents reliance on a public listing or obvious buyer list
Targeted outreach	Creates competitive tension under confidentiality
Negotiation and diligence	Protects price, structure, conditions, timing, and closing certainty

The IBBA and M&A Source Market Pulse covers lower-middle-market sale processes where brokers, boutiques, and M&A advisors overlap. In that market, fee structure should be compared together with buyer reach and execution scope.

“The problem with fee formulas is not that they are inherently wrong. It is that many sellers never convert them into dollars at their expected sale value. Once they do, a capped success fee is easier to understand and easier to compare against the work actually being delivered.”

• Daniel Bae, Founder & CEO, Lyndon Advisory

Lyndon vs A Retainer Plus Lehman Proposal

Line item	Retainer plus Lehman proposal	Lyndon Advisory
Success fee	Formula-based, often uncapped	2% of enterprise value
Cap	Often none unless negotiated	US$300,000
Retainer	Common	None
Monthly fee	Common	None
Expense recharge	Often separate	None
Payment trigger	Check signing, closing, and tail terms	Closing only
Scope	Must be confirmed	Full sell-side advisory process

The safest comparison is net proceeds after all advisor economics and deal costs. Use M&A Advisor Fees and Seller Net Proceeds and the fee calculator before signing.

Practical Next Step

Situation	Best next step
You received a Lehman-style proposal	Compare M&A advisor fee proposals
You want to model fee dollars	Use the fee calculator
You want Lyndon’s published terms	Review Lyndon fees
You want to know whether your business fits	Submit a confidential valuation inquiry

For related reading, see M&A Advisory Fees, M&A Advisory Fee Comparison Scenarios 2026, M&A Advisor Success Fee Percentage, M&A Advisor Fee Cap vs Minimum Fee, and Capped Success Fee M&A Advisor.