Investment Services

Double Lehman Explained

We use a Double Lehman charge structure for assisting sell our buyers organization. Some of our consumers are familiar with the Double Lehman structure and some other individuals have heard about Lehman formula and some have not heard of either of these charge structures.

Lehman Formula, a precursor to Double Lehman, is a compensation structure created by Lehman Brothers a lot of decades back for investment banking solutions. The standard Lehman charge structure is as follows:

* 5% of the initially million dollars of transaction worth

* 4% of the second million

* 3% of the third million

* 2% of the fourth million

* 1% of every little thing thereafter

This formula suggests that a seller would spend an M&A firm a charge of $150 thousand on the initially $five million of transaction worth. The M&A firm would get an extra 1% for transaction worth in excess of $five million. A $100 million transaction, a little transaction by investment banking requirements, would produce a transaction charge of $1.1 million, or 1.1% of the transaction worth. More than the decades, as inflation kicked in and as the complexity of the bargains grew, this charge structure has evolved. In modern day investment banking transactions, this Lehman structure is augmented heavily by upfront charge, retainers, hourly charge and other charge to compensate for the costs in the transaction.

For huge bargains, the Lehman Formula delivers large costs and national M&A firms such as Goldman Sachs, Merrill Lynch compete to win these bargains. These bargains are very customized and the M&A firms' compensation have a tendency to be tailored per the objective of the deal. Common time to consummate these bargains is involving 1 and two years and it is frequent for investment bankers to derive most of their earnings from upfront charge and month-to-month/hourly charge properly just before the deal consummates.

On the other finish of the transaction size spectrum, organization brokers ordinarily charge 10-12% of the transaction proceeds. These bargains have a tendency to close in a matter of a handful of months and brokers derive most, if not all, of their costs at the closing of the transaction.

Mid industry M&A specialists have a challenge in the sense that the operate of closing mid industry bargains can be as hard as or far more hard than for bigger bargains. The time taken to consummate the transactions is also comparable to that of the bigger bargains. Lehman was not created for these smaller sized bargains and operating at the compensation level implied by Lehman is untenable for M&A firms. On the other hand, charging consumers 10-12% charge as organization brokers charge can be detrimental to the interest of the client promoting a multi-million dollar organization.

Double Lehman is a compensation structure developed by M&A specialists to resolve this issue. Double Lehman is a variation on the Lehman Formula to bridge the gap involving the little (much less than $1 million) and huge (higher than $100 million) bargains.

Below Double Lehman, the M&A specialist charge is structured as follows:

* 10% of the initially million dollars involved in the transaction

* 8% of the second million

* 6% of the third million

* 4% of the fourth million

* 2% of every little thing thereafter

The Double Lehman delivers for a charge of $300,000 for a $five million transaction (six% of transaction worth). The charge on a $20 million deal would be $600,000 (three% of transaction worth). Due to the complexity of the transaction and the duration of time it requires to consummate the transaction, mid industry M&A experts ordinarily charge upfront costs and retainers in addition to the Double Lehman primarily based charge structure.

Bottom Line: The Double Lehman is a practical way to commence discussions relating to M&A specialist compensation for promoting mid-industry firms. For most mid industry transactions, the charge structure is probably to be a mixture of upfront charge and accomplishment charge and most bargains are negotiated. The seller and the M&A specialist can operate collectively to generate win-win bargains.


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