Resources: Glossary

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Lehman Formula

Definition

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.