How to set a success fee for middle-market M&A transactions

The three approaches to calculating the success fee—the commission the seller pays on a completed transaction—appear to be based on very different philosophies.

The classic "Lehman Formula" assumes the percentage rate should fall when the purchase price increases. The inverse, often called an accelerator formula, raises the commission if the sales price exceeds certain levels. A third approach keeps a constant rate regardless of transaction size.

In 2025, investment bankers and business brokers prefer the Lehman formula, although the accelerator formula is gaining adherents. Here are the key findings from the latest annual Firmex Fee Guide, which is based on a survey of more than 450 global merger advisors:

• 41% use a percentage that decreases for larger deals. Some use the classic Lehman formula—5% for the first $1 million, 4% for the second $1 million, down to 1% for amounts of $5 million and up. Others use the same framework with different tiers and percentage rates. Proponents say this approach best reflects the cost of the merger advisors. "A modified Lehman scale makes the most sense since the amount of work or deal complexity does not necessarily increase with deal size," said Steve Lee, a managing director of Layer 7 Capital in White Plains, United States.
• 27% use a flat percentage. Advisors that use flat rates say it is the easiest for clients to understand. "We keep our fee structure straightforward," said Justin Levine, the managing director of TheNonExec Limited in Poole, England.
• 21% use a percentage that increases for larger deals. This approach has been gaining adherents, especially at a time when valuations are under pressure because it aligns the advisor's incentives with the client's interests. "Sometimes, we will use a tiered success fee, which accelerates over a certain valuation so that clients feel like we are pushing for the highest value," said Terry Mocherniak, a managing director of Apex Capital Advisors in Toronto, Canada.

Ultimately, however, the choice of fee structure may have less impact on the total fee paid than it might appear. The Firmex study asked advisors what their typical rate would be for deals of different sizes. The results were largely the same, regardless of which formula was used.

How do you set your success fees? Tell us in the comments.

For the latest trends in middle-market fees, get the 2025 Firmex Fee Guide here.