Lehman formula vs referral fee: how an M&A success fee compares with a SourceX reward

The short answer

A Lehman formula fee and a SourceX referral reward pay for different work and come from different pockets. A Lehman-style success fee is what a client pays its M&A advisor for running a transaction, scaled on transaction value in declining tiers. The SourceX reward is a share of the fee SourceX collects when a company you introduced licenses its data: SourceX pays it, and it never comes out of the company's proceeds.

That difference matters to sell-side bankers and M&A advisors who want to introduce a client to data licensing without confusing the client, or their own engagement letter, about who pays what.

What the Lehman formula is

The Lehman formula is a tiered success-fee convention for M&A and capital-raising work. It applies a percentage to each successive tranche of transaction value, and the percentage steps down as the tranches get larger, so the effective rate falls as the deal grows.

Variants and related structures you will see in engagement letters:

• Double Lehman: the percentage in each tier is doubled relative to the base schedule.
• Modified Lehman: the firm changes the tier sizes, the percentages or both.
• Minimum success fee: a floor on the fee, sometimes with monthly retainers credited against it.
• Flat or ratchet fee: one percentage of transaction value, or a higher percentage on value above an agreed target.

There is no single standard schedule, and this page does not state one. What governs is the fee clause and the definition of transaction value in each engagement letter.

Side by side: Lehman-style success fee vs SourceX partner reward

Why the two do not stack on the client

A company licensing data through SourceX agrees one all-in price that already includes SourceX's fee, with no separate charges. Your reward is carved out of that fee. Introducing a client therefore adds no line item to the client's side of the deal, and the client pays nothing extra because you were the referrer.

The one place the two can collide is your own engagement letter. If its definition of a transaction is broad enough to cover a license of the company's assets or intellectual property, the client could owe you a success fee on the data license as well. That would be a client cost, not a SourceX cost, so settle it with the client in writing before you make the introduction.

Fee-clause checks before you introduce a client

• Transaction definition: does it reach licenses, asset transfers or any monetization of assets, or only a sale of the company?
• Tail clause: if the mandate ends, would a data license signed during the tail period trigger a fee?
• Third-party payments: does the letter require you to disclose, or credit against your fee, amounts you receive from third parties in connection with the client?
• Minimums and retainer credits: would license proceeds count toward a minimum success fee?

If any answer is unclear, resolve it with the client before the introduction goes out. The explainer on what a referral fee agreement is covers how partner agreements of this kind are usually structured.

Where securities rules come in

Success fees on M&A deals sit close to broker-dealer rules because they are paid on securities transactions. A data license is a contract for rights to use records, not a sale of the company or its securities, but that alone does not settle how every payment is treated. Three points to know:

• The statutory M&A broker exemption in Exchange Act Section 15(b)(13) concerns brokers effecting securities transactions in connection with transferring ownership of an eligible privately held company, within size limits. It does not address introductions for data licensing, so do not read it as covering a SourceX reward.
• FINRA Rule 2040 bars FINRA member firms and their associated persons from paying compensation to unregistered persons who would have to register to receive it. It governs payments made by member firms, not by SourceX, but if you are a registered representative, bring your firm's compliance team in before joining any outside referral program.
• State rules on finders and business brokers vary; check the rules where you and the client are located.

This is general information, not legal, tax or financial advice. Confirm with your own counsel or compliance team before acting.

When each model fits

A Lehman-style success fee fits when you are engaged to run a sale or capital raise and are paid for that work. The SourceX reward fits when you make an introduction and SourceX runs the licensing process. If the client also wants you to advise on the license itself, that is a separate engagement with its own terms, disclosed alongside the reward; the page on whether an M&A advisor can run a data licensing process covers that dual role.

Advisors who prefer trading introductions to taking any payment can compare the options in reciprocal referrals vs referral fees.

Illustrative: one client, two fee streams

Illustrative, fictional example. Corran Supply, a 180-employee industrial distributor with twelve years of ERP, CRM and support history, hires a boutique bank on a modified Lehman engagement to explore a sale. The bids come in below the owner's expectations and the process pauses.

The banker suggests the owner look at licensing the company's order-exception and customer-support records. Before introducing the company, the banker confirms that the engagement letter defines a transaction as a sale of control only, tells the owner in writing that the bank is a registered SourceX partner and how the reward works, and sends the introduction through the bank's referral link. The owner agrees an all-in price and signs. Once the buyer pays and SourceX receives its fee, the bank's reward comes out of that fee; the owner's license proceeds are untouched, and the Lehman fee stays tied to any future sale.

For owners in that position, the neutral comparison of licensing data and selling the company is a useful page to send.

How the SourceX reward works

Partners earn 25% of the eligible platform fees SourceX actually collects from the referred company's licensing deals, capped at $100,000 per referred company, and the reward becomes payable only after the buyer pays and SourceX receives its fee. A lead, a meeting or a signed agreement on its own triggers nothing, and no reward is guaranteed. Credit goes to the first valid referrer whose introduction leads to a verified company application within the attribution window.

The referral earnings calculator shows how the formula works under the published program, and the program terms set out the details.

Next step

Check your engagement letter against the four points above, then register as a partner and introduce a client who is not ready to sell. The M&A advisor partner page describes which clients tend to fit.