LEHMAN FORMULA

A compensation formula originally developed by Lehman Brothers for investment banking services. This formula is commonly used by merger & acquisition and investment bankers in determining a success fee formula for the sale of publicly or privately held companies. Most typically, an investment banker will be paid a higher percentage of the first million dollars of selling price and correspondingly lower percentages for each million dollars of consideration thereafter. Since inception, the original formula has morphed many times over.

We now see such iterations as double Lehman, stepped Lehman, reverse Lehman and many others too lengthy to write in this short treatise. If you are considering the sale of your company, the manner in which your investment banker or broker is paid is obviously important but more importantly the total valuation of sale after tax should be your most important consideration.

At George & Company, we custom tailor a fee schedule for each client to meet their specific needs. Many times, we utilize  a Convex Lehman Formula that is based on a calculation where we are rewarded for bringing a total selling price that is higher than the fair market value of the company. We can do this because of our 30 years experience in mergers & acquisitions. We are not afraid of charging lower fees in the beginning because we are confident of our ability to perform to the seller's expectations. Consider that if you agree the value of your company is $10 million and we deliver $11 million instead, would you have a problem paying us a higher Lehman multiple on money you never expected to receive in the first place? Probably not!

George & Company utilizes a similar fee structure when working the buy-side of a deal also. If we are engaged by the buyer to represent them, not the seller, we are typically paid based on a Lehman formula of savings we generate from the asking price if is agreed to be fair market value. For more information about our business buyer representation services, please visit that section of our web site or click this link.