Business Broker Commissions
April 26, 2021
by a searcher from University of Pennsylvania - The Wharton School in San Mateo, CA, USA
Hi Everyone,
Does anyone know what a typical broker commission is for a seller looking to sell a $3-$10M business? Looking around online I'm finding all kinds of estimates. I'd love to know if there's a typical way brokers structure this (flat fee, % of sale, % of sale above certain number) and ballpark numbers for what they charge.
from Victoria University of Wellington in New Zealand
From two M&A fee survey reports I monitor (US):
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Lehman Formula in Decline and Growing Use of Scaled and Simple Percentages
The percentage of respondents reporting that they use the Lehman formula fell from 26% in 2016 to 18% in 2017 and has remained at approximately this level since. The proportion of respondents using the simple percentage or scaled percentage has fluctuated over the years with those using the simple percentage ranging from 28% in 2017 to 43% in 2020 and those using the scaled percentage ranging from 37% in 2016 to 45% in 2017.
The range of fees expected by respondents declines as deal size increases. For a deal value of $5 million, the fee range expected by most respondents in all years is 4-6% (reported by an average of 43% of respondents over the years of the surveys) followed by 2-4% (27%).
At the $10 million deal size, the fee range expected by most respondents in all years moves lower to 2-4% (43%), followed by 4-6% (33%). The order of the rankings remained the same over all years for $5 million and $10 million deals.
Firmex M&A Fees Over the Years: A Fee Guide Companion
https://www.firmex.com/resources/reports-guides/ma-fees-over-years-fee-guide-companion/
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The vast majority of respondents charge engagement fees, a small minority, only 8.5% of respondents did not include an engagement fee as part of their fee structure.
Transaction fee structure:
Simple percentagae 37%
37% Scaled
27% Lehman or variant
Transaction fee for $5M deal
4-6% fee 45%
2-4% fee 30%
1-2% fee 3%
(Next grade up is $20M sale)
Firmex and Divestopia M&A Fee Guide: Industry Survey Results and Findings.
https://www.divestopedia.com/14/8102/sale-process/investment-bankers/ma-fee-guide-industry-survey-results-and-findings
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from Wisconsin Lutheran College in Brookfield, WI, USA
Normally we lead with a Double Lehman which would be 10% on first million of sale price, 8% on 1-2 million, 6% on 2-3 million, 4% on 3-4 million, 2% thereafter. That translates to 6% on a $5 million sale, 4% on a $10 million sale.
Now reality - it's all up for negotiation depending on the industry and quality of business. I'm negotiating with one seller right now on a flat fee, others we have negotiated a flat fee to a certain value level, then a higher rate if we are successful in finding a premium buyer. In some industries (assisted living and powersports come to mind) there are industry "standards" that we typically abide by that are different than I outlined.
I think you can estimate the Double Lehman as normal cost for seller.