Success Fee
A contingency fee paid to an M&A advisor, investment bank, or licensed transaction professional only when a deal closes, typically calculated as a percentage of total enterprise value using a Lehman or reverse Lehman formula.
What Is a Success Fee?
A success fee is the primary form of compensation for M&A advisors and investment bankers. Unlike a retainer, it is contingency-based: the advisor earns nothing unless the transaction completes. For sellers, this alignment has a simple appeal — the advisor only gets paid if you get paid.
Success fees are standard in investment banking mandates across all deal sizes, from small business broker transactions to multi-billion dollar cross-border deals. The percentage varies by deal size and the complexity of the transaction.
How Success Fees Are Calculated
The Lehman Formula
The most widely used success fee structure is the Lehman formula, first developed by Lehman Brothers in the 1970s. The classic Lehman formula calculates the fee as:
| Transaction value | Fee rate |
|---|---|
| First $1 million | 5% |
| Second $1 million | 4% |
| Third $1 million | 3% |
| Fourth $1 million | 2% |
| Above $4 million | 1% |
For a $10 million transaction, this produces a success fee of approximately $150,000–$200,000, depending on what counts toward the fee base (enterprise value, equity consideration only, or total value including assumed debt).
The Modified Lehman / Reverse Lehman Formula
For mid-market transactions ($20M–$500M), advisors typically use a modified Lehman or reverse Lehman formula, which applies higher percentages to higher value tranches — the opposite of the classic formula. This reflects the premium advisory effort on larger, more complex deals.
A common mid-market structure:
| Transaction value | Fee rate |
|---|---|
| First $10 million | 2.0% |
| Next $15 million | 1.5% |
| Next $25 million | 1.0% |
| Above $50 million | 0.5% |
Flat Percentage (Small Business)
Business brokers handling transactions below $5 million in enterprise value typically charge a flat success fee of 8–12% of the transaction value. This reflects the higher effort relative to deal size at the lower end of the market.
Typical Success Fee Ranges by Deal Size (2026)
| Deal size (EV) | Typical success fee | Who charges it |
|---|---|---|
| Below $3M | 8–12% | Business broker |
| $3M–$20M | 4–7% | M&A boutique or broker |
| $20M–$100M | 2–4% | Investment bank or boutique |
| $100M–$500M | 1–2.5% | Mid-market investment bank |
| Above $500M | 0.5–1.5% | Bulge bracket / elite boutique |
Ranges reflect APAC mid-market practice in 2025–2026. Specific mandates vary by complexity, geography, and advisor negotiation.
Success Fee vs. Retainer
Many traditional M&A advisors charge both a monthly retainer and a success fee. The retainer — typically $10,000–$30,000 per month — covers the advisor’s ongoing work during the mandate, regardless of outcome. The success fee is paid at close.
The retainer exists because running a sale process is expensive and time-consuming. A full sell-side process involves CIM preparation, buyer list construction, outreach, management meetings, LOI negotiation, and due diligence management — often requiring 500–1,000 hours of professional time before a deal closes (or does not close).
AI-powered marketplace models change this economics. When the platform generates deal materials, matches buyers, and coordinates the process, the upfront cost is lower. Amafi charges no retainer and no listing fee. The success fee is paid only at close, through Lyndon Advisory — the in-house licensed advisor who manages the regulated transaction. For sellers, this means starting the process costs nothing.
When Is the Success Fee Paid?
Success fees are paid at completion — the moment funds are transferred and legal title passes. They are not paid at:
- Signing of a letter of intent (LOI) or heads of agreement
- Entry into exclusivity
- Exchange of contracts / signing of the purchase agreement
Completion is the trigger. This is aligned with the seller’s primary interest — receiving proceeds from the sale.
Some mandates include a break fee or abort fee — a reduced fee if the seller pulls out of an agreed deal or a buyer walks away for reasons within the seller’s control. This protects advisors from last-minute aborts after significant work has been done. Break fees are negotiated case by case and are not universal.
Why AI Marketplaces Change the Success-Fee Model
Traditional success fees have been high relative to what sellers receive because the advisor bore all the upfront risk and cost. AI tools — deal matching, CIM generation, buyer outreach automation, and AI-native data rooms — reduce the cost of running a sell-side process, which in turn reduces the fee burden on sellers.
Amafi’s marketplace model reflects this shift: the platform uses AI to match sellers with qualified buyers, generate deal materials, and manage the data room Q&A process. A licensed advisor (Lyndon Advisory) handles the regulated aspects of the transaction and earns the success fee at close. Because AI does much of the preparation work, the process costs the seller nothing to start — and the success fee through the licensed advisor reflects the reduced overhead of an AI-augmented process.
Thinking about the cost of selling your business? Read How Much Does It Cost to Sell a Business? for a full breakdown of fees by deal size and method. Or start confidentially on Amafi — no upfront fees, no retainer, success fee only at close.