M&A Advisory: Flat Fee vs. Success-Based Pricing

Most sell-side engagements use both. Understanding the trade-offs helps you negotiate the right structure.

Pure flat fee

You pay a fixed amount regardless of whether the deal closes or at what price. Uncommon for full sell-side representation but sometimes used for valuation-only engagements or very small deals.

Pure success fee

You pay only if the deal closes, based on transaction value. Sounds appealing to owners but rarely serves them well — advisors under pure success arrangements tend to push for any closing rather than the right closing.

The hybrid (most common)

A modest work fee up front covers the preparation phase, and a larger success fee pays at closing. The work fee is often (but not always) credited against the success fee. This aligns incentives well: the advisor is committed enough to invest real effort but rewarded most when the outcome is good.

Success fee variations

• Straight percentage — simplest, common for lower middle market
• Lehman formula — tiered, more common historically than today
• Double Lehman — higher tiered percentages, still used by some advisors
• Minimum success fees — floor that protects the advisor if the deal comes in low
• Value-based incentives — increased percentage for exceeding a target price

What to push for

Structure that aligns the advisor with your specific goal. If maximizing price is the priority, negotiate escalating percentages above a target. If speed matters, negotiate reduced fees for a fast close. The fee arrangement should reflect what actually matters to you.