Lehman Formula

A formula used by investment bankers and M&A advisors to calculate the amount of compensation due upon a successful transaction.

Tips

The formula starts with a higher percentage on the first million and reduces accordingly for every successive million dollars in the transaction. Lehman formulas vary by size of transaction. They can vary from a low of 5% on the first million to 1% on the 5th million, to 10% on the first million to 1% on the last 10th million.

• Lehman Formula:
  • 5% on the first million, plus
  • 4% on the second million, plus
  • 3% on the third million, plus
  • 2% on the fourth million, plus
  • 1% after that.
• Double Lehman Formula:
  • 10% on the first million, plus
  • 8% on the second million, plus
  • 6% on the third million, plus
  • 4% on the fourth million, plus
  • 2% after that.
• If a business sells for $5 million, the fee would be: $100k (10% on the first million) + $80k (8% on the second million) + $60k (6% on the third million) + $40k (4% on the fourth million) + $20k (2% thereafter) = $300k.