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Reverse Scaled Success Fee

Definition - What does Reverse Scaled Success Fee mean?

A reverse scaled success fee is similar to a scaled success fee, except that the percentages increase (rather than decrease) as the enterprise value of a business increases. A reverse scaled fee creates even stronger incentives for the banker to find the highest possible bidder, as a higher enterprise value threshold would mean an even higher success fee.

Divestopedia explains Reverse Scaled Success Fee

There is a tremendous amount of subjectivity in setting the threshold ranges on the reverse scale accurately. In negotiating a reverse scaled success fee, a business owner should be careful not to set the scale too low. Doing so would mean unusually large success fees for minimal work. A reverse scaled success fee should reward additional percentage payouts for additional work to give incentive to the banker to go "above and beyond" rather than merely reward the banker for obtaining an easily negotiable, or even low, offer.

As an example, if the seller receives a $50 million offer that meets the minimum value expectation, the investment banker would get a modest success fee of 2%. However, if a much higher offer of $65 million is received, the investment banker could receive an additional 10% on the difference between your minimum value expectation and the premium offer. Total success fees in this transaction at $65 million would be $2,500,000 (or 3.85% of the total deal).

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