By Andreas Pettersson, Founder, Leaders ADAPT
An owner forwards me an engagement letter from an M&A advisor. Twelve pages. He has read the first one, the success fee, and skipped the rest. He wants to know whether the percentage is fair.
The percentage is rarely the problem. The problem is on pages six to eleven: what the fee is calculated on, how long the retainer runs, what happens if he walks away, and how long after the engagement ends the advisor still gets paid. Those clauses decide the real fee. Most owners sign them without reading.
I have sat on the seller's side of the table. I built Arcules from zero to over 150 people and sold it to Canon. I am not an M&A advisor and Leaders ADAPT is not one either. This page explains how the market charges, with every number linked and dated, so the owner reading the letter knows what normal looks like.
M&A advisor fees are a retainer or work fee paid during the process, a success fee paid at closing, usually a percentage of deal value on a flat or sliding scale, a minimum success fee that sets a floor, and expenses, all defined in an engagement letter that also sets the tail period and the exit terms.
Quick answer: M&A advisor fees usually combine a retainer and a success fee. BizQuest lists retainers of $5,000 to $50,000 and minimum success fees of $35,000 to $50,000. In a 2021 Firmex and Axial survey, the most common success fee was 4 to 6 percent on $5 million to $10 million deals and 2 to 4 percent on $20 million to $50 million deals. Lehman scales step the rate down as the price rises.
Leaders ADAPT is not an M&A advisor, a business broker or an investment bank, and does not sell businesses. We work on readiness before an owner hires one: leadership, operations, technology and the finance seat. Our exit readiness read is a fixed fee, quoted per engagement after the first call. No firm named on this page pays us. Every market figure is a third party's published number, linked with the month I read it. If their number has changed, their page wins. This page is not legal or tax advice.
The five parts of an M&A advisor fee
Every engagement letter I have read builds the fee from the same five parts. The names change. The parts do not.
1. The retainer or work fee. Paid during the process, win or lose. In the Firmex and Axial M&A Fee Guide, based on 269 respondents surveyed from July to September 2021, about 86 percent of advisors charge some form of work fee. The shape varies. 42 percent charge a fixed lump sum, 35 percent a monthly retainer and 9 percent bill hourly. Among the monthly retainers, 40 percent sat between $5,000 and $10,000 a month, and 20 percent were above $15,000 a month, up from 7 percent the year before.
2. The success fee. Paid at closing, as a percentage of deal value. The same survey found 39 percent of advisors use a scaled percentage, 38 percent a simple flat percentage, and 21 percent a Lehman formula or a variant of one.
3. The minimum success fee. A floor under the formula. Two thirds of the surveyed advisors include one. BizQuest puts typical minimums at $35,000 to $50,000, and lists retainers of $5,000 to $50,000, often deducted from the success fee at closing.
4. Expenses. About three quarters of the surveyed advisors bill expenses on top, most often travel, then the virtual data room, then printing and materials.
5. The break fee. Paid by the seller who walks away from a process the advisor has run. 25 percent of the surveyed advisors include one, down from 36 percent the year before.
Read the letter with those five headings beside you. If a part is missing, ask why. If a part is there and you do not understand it, do not sign until you do.
M&A advisor fees by deal size, in one table
The table puts the three Lehman scales next to the most common flat ranges from the Firmex and Axial survey. The Lehman figures are my arithmetic on the published tiers. The survey ranges are what advisors said they most commonly charge. Neither is a quote, and neither is a Leaders ADAPT price.
| Deal value | Original Lehman | Double Lehman | Modern Lehman | Most common flat range, Firmex and Axial 2021 |
|---|---|---|---|---|
| $5 million | $150,000, 3.0 percent | $300,000, 6.0 percent | $400,000, 8.0 percent | 4 to 6 percent, $200,000 to $300,000 |
| $10 million | $200,000, 2.0 percent | $400,000, 4.0 percent | $580,000, 5.8 percent | 4 to 6 percent, $400,000 to $600,000 |
| $20 million | $300,000, 1.5 percent | $600,000, 3.0 percent | $880,000, 4.4 percent | 2 to 4 percent, $400,000 to $800,000 |
| $50 million | $600,000, 1.2 percent | $1,200,000, 2.4 percent | $1,780,000, 3.6 percent | 2 to 4 percent, $1,000,000 to $2,000,000 |
Sources, read October 2026: tiers from Wikipedia's Lehman Formula entry and BizQuest, flat ranges from the Firmex and Axial M&A Fee Guide 2021-2022. The survey reports 1 to 2 percent as most common on $100 million and $150 million deals.
Three things jump out when owners see the table for the first time.
First, the scale matters more than the percentage. The same $10 million sale costs $200,000 or $580,000 depending on which Lehman variant is in the letter. Both are called Lehman.
Second, the effective rate falls as the price rises, on every scale. A fee that sounds like 10 percent is 10 percent on the first million only.
Third, the survey ranges and the Lehman math roughly agree in the middle of the market. If a letter for a $10 million company lands far outside $400,000 to $600,000, in either direction, ask what is different about the scope.
The Lehman formulas, and what the step down means for you
The original Lehman scale was developed at Lehman Brothers in the early 1970s: 5 percent of the first $1 million, 4 percent of the second, 3 percent of the third, 2 percent of the fourth and 1 percent of everything above $4 million. On a $10 million sale it produces $200,000, which is why smaller deals moved to steeper versions.
The Double Lehman doubles each tier: 10, 8, 6, 4, then 2 percent above $4 million. BizQuest calls it the more common form today. The Modern Lehman, also called Double Percentage Lehman, starts at 10 percent and steps down one point per million until it reaches 3 percent on everything above $8 million.
Work your own number before the first meeting. Take the price you think is realistic, not the one you hope for, and run it through each scale. Then add the minimum success fee and check which one wins. On a small deal the minimum often decides the fee, and the percentage is decoration.
Then ask the question owners skip. What does the scale pay the advisor for the last million of your price? On a Double Lehman above $4 million, every extra million earns the advisor $20,000. Every extra million is worth far more to you. Some owners respond by negotiating a lower base rate with a higher rate above a target price, so the advisor shares in the upside you care about. Whether that is right for your deal is a conversation with your lawyer and your advisor. The point is to know the shape before you sign it.
The clauses that move the real fee
The success fee percentage is the clause everyone negotiates. These are the ones that move the money.
What the fee is calculated on. Most letters define transaction value broadly. It can include debt the buyer assumes, the seller note, money held in escrow and the full potential of an earnout. If the definition says total consideration, you may owe a fee on money you never receive. Ask for a worked example in the letter itself, using a realistic structure.
When the fee is paid. In the Firmex and Axial survey, 57 percent of advisors are paid the full success fee at closing, regardless of when the components of the price arrive. 43 percent are paid as the components are received. If a third of your price might be deferred, that difference is real money.
How long the retainer runs. A monthly retainer with no end date pays the advisor for a process that drifts. Ask for a cap on the months, and ask whether the total is credited against the success fee. In the survey, 72 percent of advisors who charge a work fee credit it at closing.
The tail period. Divestopedia describes the tail as the window after the engagement ends in which the advisor still earns the fee, usually 12 to 24 months. The length matters less than the definition of a covered buyer. Everyone who received the teaser is a wide net. Buyers who actually entered negotiations is a narrow one, and the narrow one is fairer to you.
Exclusivity and termination. How you leave if the process stalls, how much notice you give, and whether the break fee applies if you decide not to sell at all.
Expenses. Ask for a cap and a monthly statement. Data rooms, travel and printing add up quietly.
My rule is simple. If you cannot explain every clause to your spouse in one sentence, you are not ready to sign it.
Who is allowed to charge a success fee
This is the part most owners never ask about, and it is a fair question to put to any advisor. Taking a success fee on the sale of a company's stock has historically raised a securities question: is the person acting as an unregistered broker?
Three dates matter.
January 31, 2014. The SEC staff issued a no-action letter for M&A brokers. According to Morgan Lewis, it let M&A brokers receive transaction based compensation in the sale of privately held companies, subject to ten conditions, including that the broker does not handle the securities in the deal and cannot bind a party to the transaction.
2017. FINRA's capital acquisition broker rules, announced in Regulatory Notice 16-37, became effective, a lighter registration category for firms that only advise on M&A and capital raising and do not hold customer funds or securities.
March 29, 2023. Section 15(b)(13) of the Securities Exchange Act took effect. As Gordon Rees summarises it, it exempts M&A brokers from SEC registration when the company sold had EBITDA under $25 million or gross revenues under $250 million in the prior fiscal year. Conditions apply. The buyer must take control and be active in the business. The broker may not hold the deal's funds or securities, provide financing, bind a party, or represent both sides without written disclosure and consent. The exemption does not restrict the form of compensation. Dickinson Wright adds that it does not override state registration rules, and that only some states had their own M&A broker exemptions when it was written.
What this means for you is not legal analysis. It is one question for any advisor before you sign: how are you registered, or which exemption are you relying on, in my state? A good advisor answers it in a sentence. Not legal advice. Your deal lawyer has the final word.
Where AI fits in choosing an advisor and reading the letter
AI does not negotiate the fee. It shortens the homework.
First, the letter. Paste the engagement letter into an AI assistant and ask it to list every payment trigger, every defined term that feeds the fee, and every date. You get a one page summary of the twelve pages in minutes. Then read the twelve pages anyway, with the summary beside you, because the assistant can miss a cross reference that your lawyer will not.
Second, the comparison. Put two or three letters side by side and ask the assistant to run your realistic price through each fee structure, including minimums, retainer credits and the earnout treatment. The answer is often surprising. The lowest percentage is not always the lowest fee.
Third, your own numbers. The cheapest way to a fair fee is a company whose numbers are easy to verify. AI tools that help the finance team close the month faster and build the data room early make every advisor's job shorter. For companies that run on EOS, our guide to AI for EOS companies shows where that work fits the quarterly rhythm.
Where it does not belong is the choice. Which advisor you trust with the biggest transaction of your life, and whether to sell at all, are yours. Our page on what not to delegate to AI makes that case in full.
What negotiating the fee does not fix
Owners who read this page often spend a month negotiating half a point off the success fee. On a $10 million deal that is $50,000. It is worth asking for. It is rarely the biggest number in play.
Negotiating the fee does not fix a company that depends on the owner. A buyer prices that dependence through a lower multiple, a longer earnout, a bigger holdback or a two year employment contract for you. Any one of those costs more than the half point. The fix is a team that runs the company without you, which is leadership work, and it is what our leadership team development guide is about.
It does not fix numbers a stranger cannot verify. Advisors price risk too. A company with clean monthly closes, documented add backs and a sell side quality of earnings report is a shorter, more certain process, and that shows up in the letter.
It does not fix timing. Most advisors will tell you what they think the company is worth today. The owners who get the best outcome start 12 to 24 months earlier, while the answers to a buyer's questions can still change. Our exit readiness checklist lists what a buyer will test, and prepare business for sale turns it into a plan.
And it does not fix the wrong seat. If your company is small enough for a broker, or large enough for an investment bank, the fee scale is the least of it. Our comparison of business broker vs M&A advisor covers which agent fits which deal size, and cost to sell a business puts the advisor's fee next to legal, accounting, escrow and taxes.
Who is on the bench for this
Steve Shaw is the fractional CFO on the Leaders ADAPT bench. Steve has twenty years in finance leadership and works with owners on clean books, cash discipline, financial positioning before a sale, and the numbers conversation with buyers and lenders. When an owner brings me an engagement letter, Steve is the one who runs the realistic price through every fee scale in it, and then asks the more useful question: what would make that price easier for a buyer to believe.
Thor Legvold is the leadership psychologist on the bench. He works on assessments, executive fit, team dynamics and the people decisions behind a sale. When the question is whether the team can carry the company through a process that takes most of a year, without the owner answering every call, Thor gives a straight answer.
Every engagement runs through Leaders ADAPT. I take the first call, match the partner, and stay in the room. We do not run the sale. We work on what the advisor will be selling.
M&A advisor fees FAQ
What are typical M&A advisor fees?
Most M&A advisors charge a retainer up front and a success fee at closing. In the Firmex and Axial survey fielded in 2021, the most common success fee was 4 to 6 percent on $5 million and $10 million deals and 2 to 4 percent on $20 million and $50 million deals. BizQuest lists retainers of $5,000 to $50,000 and minimum success fees of $35,000 to $50,000.
Is the M&A advisor retainer credited against the success fee?
Often, but not always, so read the letter. In the Firmex and Axial survey, 72 percent of advisors who charge a work fee credit it against the success fee at closing, and 28 percent do not. If the deal never closes, the retainer is usually the part you pay anyway, which is why the monthly amount and the number of months both matter.
What is the Double Lehman formula?
The Double Lehman formula is a sliding success fee scale, 10 percent on the first $1 million of deal value, 8 percent on the second, 6 percent on the third, 4 percent on the fourth and 2 percent on everything above $4 million. On a $10 million sale it produces $400,000, or 4 percent of the price. Many advisors now use flat or custom scaled percentages instead.
What is a minimum success fee?
A minimum success fee is the smallest amount the advisor is paid at closing, whatever the formula produces. Two thirds of advisors in the Firmex and Axial survey include one in their engagement letters. BizQuest puts typical minimums at $35,000 to $50,000. On a smaller deal the minimum, not the percentage, decides the fee, so check it against your realistic price.
What is a tail period in an M&A engagement letter?
A tail period is the time after the engagement ends during which the advisor still earns the success fee if you sell to a buyer connected to their work. Divestopedia describes it as usually 12 to 24 months. Negotiate who counts as a covered buyer. A named list of parties who actually negotiated is narrower than everyone who received the teaser or signed an NDA.
Does the M&A advisor get a success fee on the earnout?
It depends on the engagement letter. In the Firmex and Axial survey, 57 percent of advisors are paid the full success fee at closing, including on deferred parts of the price, and 43 percent are paid as the components are received. If your deal may include an earnout or a seller note, ask for the second structure in writing before you sign.
Does an M&A advisor need to be a registered broker dealer?
Not always. Since March 29, 2023, Section 15(b)(13) of the Exchange Act exempts M&A brokers selling privately held companies with EBITDA under $25 million or gross revenues under $250 million, if conditions are met, such as an active buyer and no custody of deal funds. State law still applies. Ask any advisor how they are registered or exempt.
Is Leaders ADAPT an M&A advisor?
No. Leaders ADAPT is not an M&A advisor, a business broker or an investment bank, and does not sell companies. It works on readiness before an owner hires one, across leadership, operations, technology and the finance seat. The exit readiness read is a fixed fee, quoted per engagement after the first call. When an owner is ready to hire an advisor, Andreas says so.
Get ready before you sign the letter
Here is a step for tomorrow morning. Take the price you think is realistic and run it through the table above, on the Double Lehman and on a flat 4 percent. Add a minimum success fee of $50,000 and see which number wins. Then write down the three questions a buyer will ask that you cannot yet answer without picking up the phone.
If you can answer all three, you may be ready to interview advisors. If you cannot, the advisor's fee is not your biggest cost. The discount on the price is.
What the first conversation looks like
It is a 30 minute call with me, not a sales rep. Bring the engagement letter if you have one, the price in your head, and the three questions from this morning. I will tell you where I think a buyer will push, whether the company is ready for a process now, and whether an exit readiness read is the right next step. If you are ready to hire an advisor, I say so, and you should.
If we go ahead, the read is a fixed fee, quoted per engagement after the first call. Steve and Thor take the finance and people parts, I take the whole, and you get a written view of what a buyer will find and what to fix first.
Your step for tomorrow morning: take the free assessments so I can see how much of the company still runs through you, then read the exit readiness page and book the call there. Find out whether you are ready for the exit you are now excited about, before you sign an advisor's engagement letter.
