Double Lehman Explained
We use a Double Lehman fee structure for helping sell our customers’ business. A few of our clients are familiar with the Double Lehman structure and some others have found out about Lehman formula and some have not heard of either of the fee structures. Lehman Formula, a precursor to Double Lehman, is a compensation framework developed by Lehman Brothers for many years back for investment banking services. 5 million of transaction value.
1.1 million, or 1.1% of the transaction value. Over the years, as inflation kicked in and as the complexity of the deals grew, this charge structure has progressed. In modern investment bank transactions, this Lehman structure is augmented heavily by upfront fee, retainers, an hourly fee, and other fee to pay for the expenses in the transaction.
For large offers, the Lehman Formula provides huge fees and national M&A firms such as Goldman Sachs, Merrill Lynch competes to win these deals. These deals are highly customized and the M&A companies’ compensation has a tendency to be customized per the objective of the deal. Typical time to consummate these offers is between one and two years, which is common for investment bankers to derive most of their income from upfront fee and regular/hourly fee some time before the offer consummates.
On the other end of the purchase-size spectrum, business agents typically charge 10-12% of the purchase proceeds. These offers tend to close in just a matter of a couple of months and agents derive most, if not absolutely all, of their fees at the shutting of the deal. Mid-market M&A specialists have challenging in the sense that the task of closing mid-market deals can be as difficult as or more difficult than for bigger deals. Enough time taken up to consummate the transactions is also similar compared to that of the bigger deals.
Lehman had not been developed for these smaller offers and working at the payment level implied by Lehman is untenable for M&A companies. On the other hand, charging clients 10-12% fees as business agents charge can be harmful to the eye of the client offering a multi-million-buck business. Double Lehman is a settlement framework designed by M&A specialists to solve this nagging problem.
5 million purchase (6% of purchase value). 600,000 (3% of the transaction value). Due to the complexity of the deal and the duration of time it requires to consummate the deal, mid-market M&A professionals typically charge upfront retainers and fees in addition to the Double Lehman based fee structure. IMPORTANT THING: The Double Lehman is a convenient way to begin discussions regarding M&A specialist compensation for selling mid-market companies. For some middle-market transactions, the charge structure is likely to be a mixture of upfront charge and success fee and most offers are negotiated. The seller and the M&A specialist can work to create win-win deals jointly.
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