How the Lehman Fee Structure Works (Example)
August 15, 2012 - 1 min read
We recently got an email from a business broker asking us what type of finders fee structure we typically use. Our standard finder's fee structure is based on the Lehman structure. Since that post has gotten a nice response from the business broker community we thought it might be helpful to walk through a detailed example of how the Lehman structure works. For this example let's assume we have a finder's fee agreement with a Lehman structure with a business broker, and we end up buying a business that they introduced to us for $10 million. This is is how the agreement would pay out:
$1 million x 5% = $50,000
$1 million x 4% = $40,000
$1 million x 3% = $30,000
$1 million x 2% = $20,000
$6 million x 1% = $60,000
The total fee for this transaction would be $200,000 (or 2% of the sale price) and it would be payable at closing.This fee structure was created in the early 1970's by Lehman Brothers and it is a very common fee structure for small business acquisitions. We have used this structure with many of our existing portfolio companies. If you are a business broker and you have a business that meets our criteria, please contact us.
Scott founded Hadley Capital in 1998 with the idea of bringing a professional approach to the small company market and a passion for working with small company owners. It’s in his blood…he grew up visiting small companies on family vacations with his dad who was also a small company investor.
Scott works with Gillinder Glass, Filter Holdings, Custom Label, GT Schmidt, New Age Cryo, Harris Seeds, ISS, and W.C. Rouse. He was previously the chairman of the board of Packaging Specialists, JRI Industries and Kelatron, all former Hadley companies. Scott currently chairs the Hadley Institute for the Blind Board of Trustees (no affiliation).
He enjoys traveling with his family, flying (instrument rated pilot), rock climbing, golf, paddle tennis, water skiing and unwinds with beekeeping. He holds a BA from Duke University and received his MBA from the Kellogg School of Management at Northwestern University. Scott and his wife Erin have two grown children.