How Corporate Finance Adviser Fees Work. And How to Negotiate Them
Most owner-managers going through their first sale have no idea what they should be paying a corporate finance adviser. And that information asymmetry costs them money. Fees on a £10m deal can range from £150,000 to £350,000 depending on who you appoint and how hard you negotiate the terms. This guide explains exactly how adviser fees are structured in UK mid-market M&A, what reasonable looks like at different deal sizes, and how to negotiate without damaging the relationship you need to close the deal.
Table of Contents
- What does a typical fee structure look like?
- What is the Lehman formula and how is it used in the UK?
- What should total fees look like at £5m, £10m, and £20m?
- Fixed success fee or percentage. Which is better for you?
- How do you negotiate adviser fees effectively?
- What should you look out for in the engagement letter?
- FAQ
What does a typical fee structure look like?
Sell-side advisory fees in UK mid-market M&A follow a broadly consistent pattern: a monthly retainer during the process, plus a success fee payable on completion.
Monthly retainer covers the adviser's ongoing work. Preparing the information memorandum, running the buyer process, managing due diligence, and supporting negotiations. For mid-market deals (broadly £5m–£50m enterprise value), retainers typically run between £5,000 and £15,000 per month plus VAT. Some advisers will agree to credit part or all of the retainer against the success fee if the deal completes.
Success fee is the larger number and the one worth negotiating hardest. It is calculated as a percentage of the total deal consideration. Including deferred payments, earnouts, and sometimes assumed debt, depending on how the engagement letter defines "deal value." Most advisers apply a stepped or modified percentage formula rather than a flat rate.
A minority of advisers. Typically smaller business brokers rather than dedicated corporate finance houses. Operate on a success-fee-only basis. This removes your upfront cost exposure but tends to mean less resource behind your deal. You get what you pay for.
What is the Lehman formula and how is it used in the UK?
The Lehman formula originated on Wall Street in the 1970s and was designed for very large transactions. In its original form it works like this: 5% on the first $1m of deal value, 4% on the second $1m, 3% on the third, 2% on the fourth, and 1% on everything above $5m. Hence "5-4-3-2-1."
In UK mid-market M&A today, the pure Lehman formula is rarely used. What you will encounter instead is the Double Lehman or Modern Lehman. Variants that apply higher percentages across the relevant deal size range. A common UK structure looks like this:
| Deal Value Tranche | Double Lehman Rate |
|---|---|
| First £1m | 10% |
| Next £1m (£1m–£2m) | 8% |
| Next £3m (£2m–£5m) | 6% |
| Next £5m (£5m–£10m) | 4% |
| Above £10m | 2% |
Some advisers simplify this further into two or three bands, or apply a single blended percentage once a deal exceeds a certain threshold. There is no industry-wide standard. Which is exactly why you need to understand the mechanics before you sign anything.
Note that success fees are subject to VAT at the standard rate (currently 20%), which is worth factoring into your net proceeds calculation.
What should total fees look like at £5m, £10m, and £20m?
Using a Double Lehman structure and assuming a 12-month process with a £7,500/month retainer (credited on completion), here is what total adviser cost might look like across three deal sizes. These are illustrative mid-points. Actual quotes will vary by adviser, sector, and deal complexity.
| Deal Size | Retainer (12 months) | Success Fee (est.) | Total Fee | Fee as % of Deal |
|---|---|---|---|---|
| £5m | £90,000 (credited) | £260,000 | ~£260,000 | ~5.2% |
| £10m | £90,000 (credited) | £390,000 | ~£390,000 | ~3.9% |
| £20m | £90,000 (credited) | £590,000 | ~£590,000 | ~2.95% |
These figures exclude VAT and disbursements. At the lower end of the mid-market, deals do sometimes complete in under 12 months, which reduces retainer exposure. Complex deals. Multiple bidders, cross-border elements, earn-out structures. Tend to run longer and cost more.
For context: if a good adviser adds even 0.5× EBITDA to your final multiple through a competitive process, that more than covers their fee on any deal above £5m. The question is not really whether to appoint one, but how to appoint the right one on fair terms.
Fixed success fee or percentage. Which is better for you?
Some advisers will offer a fixed success fee rather than a percentage. This is more common where the business has already been substantially prepared for sale, the likely buyer universe is narrow, or the transaction is expected to be straightforward.
Percentage-based fees align the adviser's interest with yours. They earn more if the price goes up. The downside is that you can't model your net proceeds precisely until close.
Fixed fees give you cost certainty and can work in your favour on larger deals where a percentage fee would feel disproportionate. The risk is that the adviser's incentive to push hard for the final £500,000 is diluted once the deal is largely done.
On most mid-market deals, a stepped percentage with a creditable retainer is the most sensible structure. The alignment of interest matters. Particularly when negotiations get difficult in the final stretch.
How do you negotiate adviser fees effectively?
Going into fee negotiations without a view on what reasonable looks like is the most common mistake. Here is a practical approach:
- Get at least three quotes before entering detailed fee discussions with any single adviser. This gives you a genuine market reference point and creates competitive tension.
- Separate the retainer negotiation from the success fee negotiation. On the retainer, push to credit 100% against the success fee on completion. On the success fee, focus on the percentage applied to the tranche most likely to reflect your final deal value.
- Negotiate a cap on the total success fee. On deals above £15m, it is reasonable to propose a ceiling. For example, capping at 2.5% of total consideration regardless of the formula output.
- Clarify what "deal value" means in their formula. Does it include deferred consideration? Earn-outs at face value or discounted? Retained debt? Assumed liabilities? The definition matters significantly.
- Agree the abortive fee position upfront. What happens if the deal falls through. Through no fault of either party? Some advisers charge a reduced success fee or a fixed abortive fee in this scenario. Know what you are agreeing to before it happens.
- Push back on minimum fee clauses. Some engagement letters include a minimum success fee regardless of deal outcome. This can be reasonable protection for the adviser, but make sure the floor is sensible relative to the deal size you are targeting.
What should you look out for in the engagement letter?
The engagement letter is where the relationship is defined. Read it carefully. And have your solicitor review it before signing.
Key areas to scrutinise:
- Exclusivity period. Most advisers require exclusivity during the process, which is reasonable. But check the duration. 18–24 months is too long for most transactions. Twelve months is standard; push for a break right if the process stalls.
- Tail period (or "tail clause"). This is the period after the engagement ends during which the adviser is still entitled to a success fee if you complete with a buyer they introduced. Tails of 12–18 months are common. Twelve months is fair. Anything longer warrants negotiation, particularly if the process has been actively run.
- Definition of "introduced." In a broad process, the adviser may have contacted dozens of buyers. Make sure there is clarity on what constitutes an introduction that triggers the tail. And consider carving out any buyers you have an existing relationship with.
- Expense provisions. Retainer fees cover adviser time; they do not typically cover travel, data room costs, or third-party disbursements. These should be pre-agreed with a cap or prior approval requirement.
- Scope of services. Be specific about what the adviser is and is not doing. If they are not providing tax structuring advice, make sure you have a separate tax adviser engaged. The two roles are distinct.
FAQ
How long does a typical UK mid-market sale process take? Most deals in the £5m–£30m range take nine to fifteen months from appointing an adviser to completion. Complex transactions, those requiring FCA approvals, or those involving TUPE considerations can take longer.
Is a retainer always charged, or can I find advisers who work on success-fee only? Success-fee-only arrangements exist, particularly among business brokers. They reduce your upfront risk but generally mean less senior resource on your deal. For transactions above £5m, a hybrid structure is more appropriate.
Are corporate finance adviser fees tax deductible? Adviser fees incurred on the sale of a business are generally treated as a deduction against the capital gain for CGT purposes, reducing your chargeable gain. This article contains general information only and does not constitute financial or tax advice. Every business sale is different. Speak to a qualified UK tax adviser about your specific situation before making any decisions.
What is a reasonable tail period in an engagement letter? Twelve months is market standard and fair to both parties. Some advisers push for 18–24 months. This is negotiable and worth challenging, particularly if the process runs for a long time without completing.
Should the success fee include VAT? Yes. Success fees are subject to VAT at 20%. Make sure all fee quotes are compared on a VAT-inclusive or ex-VAT basis consistently, and factor VAT into your net proceeds modelling.
What is the difference between a corporate finance adviser and a business broker? There is no formal regulatory distinction, but in practice corporate finance advisers typically handle more complex transactions, use structured auction processes, and provide more detailed financial analysis. Business brokers often work at lower deal values and may operate on simpler fee structures. For deals above £5m, a corporate finance adviser is generally more appropriate.
Find out what your business might be worth
Before appointing an adviser, it helps to have a working view of your own business's value. Both to sense-check fee proposals and to approach conversations from a stronger position. Use the free valuation calculator on the Succession Group website to get an indicative range based on your sector, revenue, and EBITDA. It takes under five minutes and gives you a useful starting point for any advisory conversation.