For decades, the Lehman Formula has shaped how investment bankers, brokers, and advisers get paid in mergers, acquisitions, and capital raising deals. Despite its US origins, this fee structure is alive and well in Australia’s financial landscape—though it’s evolving as deal sizes, regulatory scrutiny, and client expectations shift in 2025. Whether you’re a business owner considering a sale, a startup raising capital, or an adviser navigating success fees, understanding the Lehman Formula is critical for negotiating fair outcomes.
What is the Lehman Formula?
Originating on Wall Street in the 1970s, the Lehman Formula set out a sliding-scale commission structure for dealmakers. The classic version works like this:
- 5% of the first $1 million of transaction value
- 4% of the second $1 million
- 3% of the third $1 million
- 2% of the fourth $1 million
- 1% of everything above $4 million
This structure rewards advisers for closing larger deals but ensures fees don’t balloon out of proportion on big-ticket transactions. The formula was designed to incentivise performance while aligning interests between clients and dealmakers.
The Lehman Formula in Australia: 2025 Market Trends
While the formula itself hasn’t changed, its application in Australia has adapted to local market conditions and regulatory expectations. In 2025, several trends are shaping how the Lehman Formula is used:
- Bespoke Variations: Many Australian advisers now use “Double Lehman” or “Modern Lehman” structures, which double the original rates or flatten the scale for larger deals. For example, a $10 million deal might attract a 2-3% blended fee, rather than strictly following the original declining scale.
- Regulatory Oversight: ASIC has increased scrutiny on transparency in fee disclosures, especially for capital raising and M&A transactions. Advisers are expected to clearly articulate how their success fees are calculated, including any variations to the Lehman Formula.
- Deal Size Impact: With Australia’s mid-market M&A sector heating up in 2025, more deals are exceeding $20 million, prompting negotiations for capped or tailored fees to ensure fairness for both sides.
- Cross-border Influence: As more global buyers target Australian assets, US and UK-style fee structures are making their way into local negotiations, sometimes blending with or replacing the Lehman approach.
Real-world example: In a 2025 Sydney tech exit valued at $25 million, the advisory team negotiated a “Modified Lehman” structure: 4% on the first $5 million, 2% on the next $10 million, and 1% on the remainder—resulting in a competitive, transparent success fee aligned with both parties’ interests.
Negotiating Success Fees: Tips for Business Owners and Advisers
For founders, business owners, or boards considering a transaction, understanding the Lehman Formula is just the starting point. Here’s how to get the best outcome in today’s market:
- Benchmark Fees: Research recent deals in your sector. For mid-market M&A, Australian success fees typically range from 1% to 3% depending on deal complexity and size.
- Ask for Clarity: Insist on a clear, written explanation of how fees are calculated—especially if the adviser uses a “Double Lehman” or custom structure.
- Negotiate Caps or Minimums: For larger deals, consider negotiating a cap on total fees, or a minimum fee for smaller transactions to ensure adviser motivation.
- Understand Incentives: The formula should align your adviser’s interests with your own. Watch out for structures that overly reward quick closes at the expense of value.
- Stay Compliant: Ensure your fee agreement meets ASIC’s latest disclosure standards and doesn’t include hidden kickbacks or conflicts of interest.
The Future of Success Fees in Australia
As Australia’s deal landscape grows more sophisticated, the Lehman Formula remains a useful benchmark—but it’s increasingly viewed as a starting point for negotiation rather than a fixed rule. Expect further customisation, greater regulatory focus on transparency, and continued pressure to ensure that fees fairly reflect value delivered. Whether you’re selling a business, raising growth capital, or advising on deals, understanding the Lehman Formula (and its modern variations) is essential to making smarter financial decisions in 2025 and beyond.
