Choosing an M&A Advisor: Fees and Questions
Business broker or M&A advisor, how success fees and retainers are structured, what the Lehman formula means, and the questions to ask before you sign an engagement letter.
How brokers, M&A advisors and investment banks differ, how each is paid, and the questions that separate an advisor who will run a process from one who will list your business and wait.
What is the difference between a business broker and an M&A advisor?
lists smaller businesses on marketplaces and waits for buyers to inquire
runs a confidential, competitive process, approaching a defined set of strategic and financial buyers directly
and negotiating structure as well as price.
The distinction matters because it determines who ends up at your table. A listing reaches whoever happens to be browsing. A process reaches the specific acquirers who already own similar businesses in your market and have a reason to pay more than a financial return justifies. Fee structures follow the same split: brokers usually work on a single percentage of the sale price, advisors on a retainer plus a success fee, often with an incentive on value above a threshold.
Broker model", value: "Listing led, buyer inquires, single percentage fee
Advisory model", value: "Process led, buyers approached, retainer plus success fee
Who should also be involved
Every arrangement below exists in the US market, and none is inherently wrong. What matters is that you understand which one you are signing and what behavior it creates.
Success fee only: A percentage of the transaction value, payable at closing. Attractive because nothing is paid unless a deal completes, but it concentrates the advisor's effort on the deals most likely to close quickly rather than the ones worth the most. Common at the smaller end of the market.
A percentage of the transaction value, payable at closing. Attractive because nothing is paid unless a deal completes, but it concentrates the advisor's effort on the deals most likely to close quickly rather than the ones worth the most. Common at the smaller end of the market.
A monthly or upfront fee covering preparation, materials and the buyer approach, plus a success fee at closing. The retainer buys the preparation work that raises the price, and it is often credited against the success fee. Standard in genuine M&A advisory.
The Lehman formula and its variants
A tiered scale where the percentage falls as value rises. The original version stepped down across the first several million and settled at a flat rate above it. Modern variants are more varied, and the label alone tells you nothing. Ask for the actual schedule in writing.
A reverse or incentive scale
The percentage rises above an agreed value threshold, so the advisor earns more on the part of the price they created. This is the structure most closely aligned with a seller's interest, and it is worth asking for.
Minimum fees: Most engagement letters carry a minimum fee irrespective of deal size. On a smaller transaction the minimum, not the percentage, is the number that matters, and it is frequently buried several pages in.
Most engagement letters carry a minimum fee irrespective of deal size. On a smaller transaction the minimum, not the percentage, is the number that matters, and it is frequently buried several pages in.
Tail periods: A clause making the success fee payable if you sell to an introduced buyer within a defined period after the engagement ends, often twelve to twenty-four months. Reasonable in principle. Check the length and check that it only covers buyers the advisor actually introduced.
A clause making the success fee payable if you sell to an introduced buyer within a defined period after the engagement ends, often twelve to twenty-four months. Reasonable in principle. Check the length and check that it only covers buyers the advisor actually introduced.
Expenses and third party costs
Marketing, data room, travel. Separate from the fee and usually recharged. Ask whether they are capped and whether they need your approval above a threshold.
Which specific buyers will you approach, and why those?
A credible advisor can name buyer types, describe their acquisition criteria and explain why each would want your business. A vague answer about a database of buyers usually means a listing.
How many businesses like mine have you sold?
Sector experience determines whether they can defend your earnings quality to a buyer who knows the sector better than they do. General experience across all industries is not the same thing.
Who is actually going to do the work?
Senior people win mandates and junior people frequently run them. Ask who writes the memorandum, who calls the buyers, and who is in the room when the price is negotiated.
What is your written fee schedule, in full?
The percentage, the scale, the minimum, the retainer, whether it is credited, the tail period and the expenses. All of it, in the engagement letter, before you sign anything.
How will you present my earnings?
A capable advisor will explain how they intend to recast your earnings and defend each adjustment in diligence. An advisor who takes your management accounts at face value will lose the difference at the quality of earnings stage.
Will my business be listed publicly?
If confidentiality matters to you with staff, customers or competitors, establish before signing whether your business will appear on a marketplace and what will identify it.
What happens if we do not sell?
Ask about termination rights, notice, what happens to the retainer, and how they will advise you if the honest answer turns out to be wait rather than sell.
Do you also represent buyers?
Many firms work both sides. That is not automatically a problem, but you should know it, and you should know how they handle a situation where a buyer they act for wants your business.
A defined buyer list built for your business, with the rationale explained
Earnings recast and documented before anyone is approached
Buyers approached in parallel so offers arrive within the same window
A blind profile released first, nothing identifiable before a signed agreement
Structure, escrow and earn-out terms negotiated, not just headline price
The advisor present through diligence and closing
Fees disclosed in full in writing before the engagement letter is signed
Your business posted to a marketplace and inquiries awaited
Your own management accounts forwarded without recasting
One buyer negotiated with at a time, sequentially
Identifiable details visible before any confidentiality agreement
Focus on the headline number with structure left to the buyer's attorney
Handover to you once the letter of intent is signed
A minimum fee or tail period that only surfaces in the paperwork
Broad patterns in the US market rather than fixed rules. Size, sector and buyer type all move the boundaries.
Below roughly $1M of value, generalist business
Business broker, priced on SDE
$1M to $5M, owner-operated with recurring revenue
M&A advisory, competitive process, adjusted EBITDA
Above $50M: Middle market investment bank
Sale to a known party or to management
Transaction attorney plus a valuation advisor
An advisor who will create competition, not paper the offer
The most expensive mistake in this decision is not the fee percentage. It is appointing someone who reaches only the buyers already looking, when the buyer who would pay the most is a platform that was not browsing and had to be approached directly.
What does an M&A advisor charge in the US?
The common shape in the lower middle market is a retainer covering preparation and the buyer approach, plus a success fee at closing expressed as a percentage of transaction value, often on a scale that falls as value rises, with a minimum fee. The percentages vary widely by firm and deal size, so the only meaningful answer is the written schedule in the engagement letter you are being asked to sign. Ask for the minimum fee, the tail period and the expense treatment specifically.
Is a success fee only arrangement better for me?
It is cheaper if nothing happens, and it can be more expensive if something does. A retainer funds the preparation work, the recasting, the memorandum and the buyer research, which is where most of the price is created. An advisor paid only on closing has an incentive toward the fastest deal available rather than the best one. Neither model is wrong, but you should know which incentive you are creating.
Should I use a local advisor?
Sector knowledge matters more than geography. The buyers for a compliance-led field service business are national platforms and private equity backed consolidators, not local parties, and a process reaching only your own metro area will usually miss the buyer who pays the most. Local knowledge is useful for real estate, lease and licensing questions, and those are reasonably handled alongside a sector specialist.
What is the Lehman formula?
A tiered success fee scale in which the percentage decreases as transaction value increases. The original stepped down across the first several million and then held flat. Today the name is used loosely for a wide range of schedules, so the label alone tells you nothing about what you would pay. Always ask for the numeric schedule rather than accepting the description.
How long is a typical engagement?
Six to twelve months, usually exclusive, which reflects the six to nine months a process normally takes from mandate to closing. Check the notice provisions, what happens to any paid retainer on termination, and how long the tail period runs after the engagement ends.
Can I sell without an advisor?
You can, and some owners do, most often where the buyer is already known. The two things you lose are competition and information. A single buyer with no alternative at the table sets the price, the pace and the structure, and most owners are negotiating their first sale against a buyer negotiating their twentieth. At minimum, get an independent view of value and appoint your own transaction attorney before responding to any offer.
How do I start without committing to anything?
Get the free written valuation report. It rebuilds your earnings the way a buyer will, names the factors suppressing your multiple, and gives you something concrete to test any advisor's view against. It is free, it is confidential, and it does not appoint anyone.
Selling a Business in the US
How US business owners choose between a business broker and an M&A advisor, how fees are structured, and what to ask before signing an engagement letter.
); export const UsProcessGuideTemplate: React.FC
Questions owners ask before they start
A free written valuation report rebuilds your earnings, prices your recurring revenue separately, and shows the specific factors holding your multiple down. It is the sensible first step before any of the work on this page.
Please enter your company website URL, for example yourcompany.com
Your data is strictly confidential.
Learn more about the valuation and value drivers report