Intermediary
Intermediary refers to a participant or role in the M&A ecosystem — a type of buyer, seller, or advisor in business acquisition transactions.
Full Definition
An intermediary in M&A is a professional who facilitates transactions between buyers and sellers — providing advisory, marketing, valuation, and deal execution services to one or both sides of a transaction. The term encompasses a range of professionals with different specializations, compensation structures, and deal sizes: investment bankers, business brokers, M&A advisors, and boutique advisory firms.
Types of intermediaries by deal size: Business brokers typically handle the smallest transactions ($100K–$3M), often working on both sides of a transaction (facilitating rather than purely advising), and earning a commission (5–10% of deal value) paid by the seller. They list businesses, find buyers, and facilitate the closing process. M&A advisors / boutique firms serve the lower middle market ($3M–$50M), exclusively representing either buyers or sellers, and typically charge a success fee (Lehman Formula or variations: 5% on first $1M, 4% on next $1M, 3% on next, 2%, 1% on remainder) plus sometimes a monthly retainer. Investment banks handle larger transactions ($25M+), charge percentage-based success fees (2–5% of deal value), and provide broader services including fairness opinions and financing advisory.
Lehman Formula: The Lehman Formula (or variations of it) is the traditional success fee structure: 5% of the first $1M of transaction value, 4% of the second $1M, 3% of the third $1M, 2% of the fourth $1M, and 1% of all value above $4M. "Double Lehman" (doubling each percentage) is common for smaller deals. Modern practice often uses modified formulas or flat percentages (2–3% of transaction value) for larger deals.
Seller's vs. buyer's intermediary: Sell-side intermediaries represent the seller, run the sale process, prepare marketing materials, qualify buyers, and negotiate deal terms. Buy-side intermediaries represent acquirers, source acquisition targets, perform preliminary valuation, and advise on deal structure. Dual-agency representation (the same intermediary representing both sides) raises conflict concerns but occurs in business brokerage where the broker "facilitates" rather than purely advises.
Value of intermediaries: Good intermediaries add value through: deal sourcing connections, confidential marketing, process management, negotiation experience, and transaction execution expertise. Poor intermediaries slow deals down, provide bad pricing advice, or prioritize closing (and their fee) over their client's best interests.
Seller vs. Buyer Perspective
Hiring the right intermediary for your deal size and sector is one of the most important decisions in your sale process. A business broker optimized for $1M restaurant sales is the wrong choice for a $10M professional services firm — and vice versa. Interview multiple advisors, check their completed transaction track records in your sector and size range, and understand their compensation structure and conflict exposure. Advisors who charge only on success (no retainer) may have weaker incentive to bring you truly optimal outcomes if they're simultaneously working multiple similar transactions.
Build relationships with intermediaries in your target sectors before you're ready to buy — these relationships generate deal flow and early notification of opportunities that never reach broad marketing. Intermediaries who trust you as a reliable, fair buyer will call you first on appropriate deals. Treat every intermediary interaction — even on deals you pass — as a relationship investment. The deal you close in year three often came from a relationship built in year one.
Real-World Example
A seller of a $4M revenue accounting software company hires a technology-focused boutique M&A firm on a 4% success fee. The firm prepares a 40-page CIM, identifies 35 qualified buyers across strategic and PE categories, runs a 12-week auction process with 4 final bids ranging from $8M–$11M, and negotiates the definitive agreement with the winning bidder at $10.5M. The intermediary's fee: $420,000. The seller's net benefit attributable to the advisor (compared to their unassisted initial buyer conversation at $7.5M): approximately $2.6M above advisor cost.
Why It Matters & Common Pitfalls
- !Intermediary experience in your specific sector matters enormously. An intermediary who has sold 20 professional services firms understands the right buyer universe, the relevant multiples, and the key diligence issues in ways that a generalist cannot replicate. Sector experience is the single most valuable intermediary attribute after honesty.
- !Success-only fee structures create closing bias. Intermediaries paid only upon successful closing have financial incentives to close deals — even ones the client should walk from. This conflict is inherent and manageable, but it argues for having your own attorney independently reviewing all deal terms rather than relying entirely on your advisor.
- !Dual-agency representation requires careful consideration. A business broker representing both buyer and seller cannot truly advocate for either. Understand whose interests are being served when a broker suggests a price, a structure, or a deal term. In dual-agency, you may need independent counsel to protect your interests.
- !Retainer vs. success fee tradeoffs affect advisor alignment. A retainer-only intermediary is incentivized to continue the engagement indefinitely; a success-only intermediary is incentivized to close quickly even at a suboptimal price. The optimal structure is a reasonable retainer that covers advisor costs plus a success fee that rewards optimal outcomes — aligning incentives without creating extreme biases in either direction.
Frequently Asked Questions
What is Intermediary in M&A?↓
When does Intermediary come up in a business sale?↓
Related Terms
Private Equity
Investment firms that pool capital from institutional investors into funds used to acquire, operate, and eventually sell private businesses for financial return — a dominant buyer category in SMB/LMM M&A.
Search Fund
An entrepreneurial vehicle where an individual or pair of searchers raises capital from investors to find, acquire, and operate a single business — typically a 2-3 year search followed by 5-10 years of ownership and operation.
Investment Banker
A financial professional who advises on M&A transactions — typically representing sellers or buyers in deals above $10M enterprise value. For smaller deals, business brokers or M&A advisors fill similar roles at different fee structures.
Get Weekly M&A Insights
Valuation data, deal analysis, and plain-English M&A education — every week.
The LegacyVector Newsletter
Join 5,000+ business owners, investors, and buyers who get weekly M&A market data and deal insights.
- Weekly valuation multiples by industry
- SBA lending rates & deal financing data
- Market trends & acquisition opportunities
No spam. Unsubscribe anytime. Free forever.
Disclaimer: The information provided on this page is for educational and informational purposes only. It should not be considered financial, legal, or investment advice. Business valuations depend on many factors specific to each situation. Always consult with qualified professionals — including business brokers, CPAs, and M&A attorneys — before making acquisition or sale decisions. LegacyVector is not a licensed broker, financial advisor, or attorney. Data shown may be based on limited samples and may not reflect current market conditions.
LegacyVector Research Team
Reviewed by M&A professionals · Updated April 2026