What are investment banker fees for selling a middle-market business?

Short answer: Sell-side M&A advisory fees in the middle market run 3 to 7 percent of transaction value, plus a monthly retainer of $10,000 to $50,000 credited at closing. Smaller deals pay higher percentages. Larger deals pay lower rates but with more complex structures.

Fee ranges by deal size

How the Lehman formula works

Many middle-market bankers use a modified Lehman or "double Lehman" structure instead of a flat percentage. The original Lehman scale was 5 percent on the first $1M of deal value, 4 percent on the second, 3 percent on the third, 2 percent on the fourth, and 1 percent on the remainder. The modified versions have been updated for deal size inflation.

A common modified structure for a $30M deal might look like this: 6 percent on the first $10M ($600K), 4 percent on the next $10M ($400K), and 3 percent on the remaining $10M ($300K), for a total fee of $1.3M, or roughly 4.3 percent blended. Knowing the structure matters because tiered fees create different incentives than flat-rate fees at various price points during negotiation.

What the fee covers

A full sell-side M&A engagement typically includes:

• Preparation of the confidential information memorandum (CIM) and executive teaser
• Development of the buyer universe (typically 50 to 200 targeted buyers for a middle-market deal)
• Outreach, qualification, and confidentiality agreement management
• Running the management presentation process
• Soliciting and negotiating initial offers (IOIs) and letters of intent (LOIs)
• Managing due diligence from multiple buyers simultaneously
• Negotiating deal structure, representations, escrow, and other economic terms through closing

What the fee does not cover

The banker's fee covers advisory services, not legal or accounting work. Budget separately for a sell-side quality-of-earnings review ($50,000 to $150,000 depending on business complexity), M&A legal counsel for the purchase agreement ($75,000 to $200,000 for a $30M deal), and your personal tax advisor to optimize the sale structure before closing. These are not optional expenses. Skipping any of them increases the probability of re-trading or deal failure after LOI.

Is the fee negotiable?

Percentage fees are somewhat negotiable, particularly for deals above $50M where the absolute dollar figure becomes substantial. Retainers are less negotiable because they represent real out-of-pocket costs the firm incurs during the engagement. The more important negotiation is over the minimum fee floor, which protects the banker if the deal closes at a price significantly below the expected range. Understand the floor before signing.

See the full article on how to pick and vet an M&A banker for what to ask during the pitch and how to evaluate competing proposals.