14 January 2013 | By Joshua Freedman
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Our latest in-depth analysis of UK M&A legal bills reveals a good performance by smaller firms and success fees on the rise
Last September The Lawyer published the first-ever ranking of public M&A deals by legal fees, available thanks to new disclosure rules brought in under the revamped City Code on Takeovers and Mergers (the Takeover Code), introduced a year earlier. The list contained fees for 50 merger and takeovers of UK-listed companies for the 12 months to August 2012, ranked according to the combined fees estimated by the parties involved, all of which are now stated in offer documents.
A small number of firms later approached The Lawyer pointing out that deals on which they advised had not been included in the table. As a result, we have fine-tuned the compilation process to ensure no deals are excluded and believe today’s list of all deals between 1 September 2012 and 31 December 2012 to be comprehensive.
But despite casting the net wider, the results of the research show a fairly quiet last third of 2012. Of the 10 top deals of the year by legal fees, only one was initially announced during the period from September to the end of the year: the merger of drinks groups Britvic and AG Barr, which gave combined billings of £5m shared mostly between Britvic adviser Linklaters and AG Barr’s lawyers, Dickson Minto. (See the full list below for lead partner names.)
The Glencore-Xstrata tie-up was re-announced in October, with new documents filed, after the £41.8bn merger was originally unveiled in February. The mega-merger in its revamped form massively props up deal activity for the last five months of the year, accounting for 45 per cent of the combined fees for the top 10 deals of 2012 and 77.5 per cent of all public M&A fees since September. The Britvic merger, the second most lucrative deal during that period, barely comes close.
Indeed, legal fees on the Glencore combination have spiralled: the original disclosure in May stated estimated legal costs of £24.8m, of which Xstrata was set to spend £13m and Glencore £11.8m. Xstrata was primarily advised by Freshfields Bruckhaus Deringer and Glencore by Linklaters, although both parties had additional advisers in specific regions or for particular practice areas that took a small share of the fees.
But the second set of scheme documents filed in October shows fees have increased: estimates are now at £20.6m for Xstrata and £18.3m for Glencore, making the deal’s £38.9m fees one of the highest M&A legal bills in UK corporate history.
Documents concerning William Hill’s offer for Sportingbet, due in the coming weeks, are expected to confirm legal fees in the single-figure millions (Ashurst, acting for William Hill, is understood to be billing upwards of £3m), but neither that nor the Britvic merger will compete with Glenstrata’s fee, nor will many deals to come.
September to December saw one other million-dollar-fee deal: the merger of Metric Property Investments and London & Stamford Property, in which Travers Smith earned £345,000 from Metric and London & Stamford paid just over £1m to a group of firms including primary corporate adviser Nabarro.
The full list of deals since September, compiled using The Lawyer’s sister data provider Perfect Information, shows a fair number of small transactions yielding total legal fees in the £100,000 to £500,000 range. Some gave roles to major firms such as San Leon Energy’s £61.6m takeover of Aurelian Oil & Gas, on which Travers advised the buyer and Herbert Smith Freehills the target, receiving £110,000 and £307,500 respectively. The smallest deal of the period in fee terms, the £5m takeover of Newcastle’s Metnor Group, gave fees worth £100,000 to Muckle and £30,000 to Mincoffs, with the two Tyneside firms advising buyer TimeC and Metnor respectively.
Total estimated legal spend for the 15 public M&A deals for which documents were filed between September and December came to £50.1m, of which all but £11.3m is accounted for by Glencore-Xstrata. For what it is worth, the average fee for both sides combined during the period was £3.1m (£1.7m on the target side, £1.6m for offerers) but this is hugely skewed by the mining superdeal. Excluding Glenstrata the average legal fee was £393,800 for acquirers and £409,900 for targets, or an average total of £803,800 per deal.
The top 10 deals across the whole of 2012 produced combined fees of £86.6m, of which £47.8m, or roughly 55 per cent, was non-Glenstrata. Hefty buy-side fees ensured SS&C Technologies Holdings’ £572m takeover of GlobeOp Financial Services came in second place with £7.1m, although this would have been higher had US private equity group TPG Capital, advised by Linklaters partners Carlton Evans and Charlie Jacobs, not been outbid by Clifford Chance client SS&C. Ashurst, acting for GlobeOp, billed up to £2.1m, compared with SS&C’s £5m split between primary adviser Clifford Chance and co-adviser WilmerHale.
As last time, legal fees paid by buyers are generally higher than targets’, although Glencore-Xstrata is the big exception. More on trend, GDF Suez’s £22.8bn takeover of International Power (IP) gave much larger fees to buy-side advisers Linklaters, Bredin Prat and Ogier (£4.1m in total) than to Clifford Chance and Carey Olsen, acting for IP (£2.2m).
Conversely, Aegis Group’s lawyers on its takeover, including main adviser Slaughter and May and Chinese firm Jun He, billed an estimated £4.2m between them, surpassing that of Japanese acquirer Dentsu, which paid £2.9m to advisers led by Linklaters alongside Baker & McKenzie GJBJ (see table, page 20).
The deal was Slaughters’ only public M&A role of the last third of 2012, but comes in as the third-largest of the year, and a relatively rare transaction in which the target’s fees exceed the buyer’s. The deal involved legal work in multiple jurisdictions, with Slaughters’ close friend Jun He among the firms providing local advice.
“Aegis is a longstanding and important client of the firm. It’s obviously a major deal with a number of international issues,” commented Slaughters lead partner Roland Turnill.
After all, magic circle firms could be said to be reassuringly expensive.
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Influence of conditional fees
Success-related fees, previously associated with litigation, are becoming more common, even on transactional work.
Such billing methods tend to be the exception on M&A, although lawyers claim conditional fees are on the rise on corporate deals. In the past, details of arrangements were obscured. Since September 2011 parties in takeovers of UK-listed companies, or mergers involving them, have been required to declare estimated legal fees when they file offer documents. The approach to this has varied - some give one round figure, some a precise amount and others a range - and, for certain deals, the filings give a true insight into how law firms agreed fees.
Take the £1.4bn merger of drinks groups AG Barr and Britvic, announced in December. It was the second-largest public deal of the last four months of 2012 in fee terms and the seventh biggest of the year.
Britvic was advised by Linklaters, with its legal fees stated as £3.25m, of which £3m went to the magic circle firm. Dickson Minto client AG Barr’s disclosure is more complex. The Irn-Bru maker’s fees ranged from £700,000 to £1.75m dependent on completion - a significant step up if the deal closed.
Partner Colin MacNeill, who led for AG Barr, agreed a success fee of just over £1m with the Scottish company, a longstanding client, with the bonus payable when the tie-up completes following approval from the Office of Fair Trading. The parties are still seeking this after the deal received shareholder backing.
“We have a longstanding client relationship with AG Barr and have tried to be flexible for them in a way that still works for us,” says MacNeill. “We don’t tend to have a fixed approach to billing and because so much of our M&A work is for private equity clients, we are used to fee arrangements that have an element of success tied to them.
“Although historically fees with success elements haven’t extended to public M&A legal fees, clients are used to success-based fees with their investment banks, and with the right relationship and the right transaction it can also work for the law firm. It’s not the first time we’ve done it on public M&A but it’s the first time we’ve done it in a way that’s had to be disclosed.”
Willkie Farr & Gallagher, Dickson Minto’s long-time ally, provided US advice through London corporate partner Jon Lyman and picked up a small percentage of the £1.75m for his firm, but is not understood to be party to the success fee.
Elsewhere, Travers Smith was happy to charge a conditional fee to longstanding client Metric Property Investments for advice on its £800m merger with London & Stamford Property, announced in November, but the client declined. Documents show a fee estimate of £354,000 for Metric, all going to Travers, and just over £1m for London & Stamford, mostly earned by a Nabarro team led by now-senior partner Graham Stedman.
Travers established the company and brought it to market in 2010 following senior British Land executive Andrew Jones’s move from the property giant to co-establish Metric in 2010. The firm had been working with the ex-British Land team and transferred the relationship to its new home, acting for it ever since.
Lead partner Aaron Stocks offered Metric a conditional fee for the merger, but the client chose to stick to hourly rates.
“What I proposed has a discount on abort but a premium on success,” Stocks reveals. “I’m fairly flexible. I’d typically offer a range of discounts with a corresponding range of premiums. Typically, at the outset [I’ll agree a fee]. We probably put a fee estimate down once the talks become more of a probability than a possibility - in this case, about nine months before the deal was done.”
Stocks says there is a trend towards conditional fees, but his deal suggests there is no excessive appetite from clients, and certainly the practice among investment banks of charging entirely success-based fees is a long way off in the upper echelons of the legal profession.
One note of caution: lawyers provide fee ranges in offer documents for a reason, namely that the last thing they want is to be forced to redisclose an updated figure, as happened when Glencore and Xstrata published new merger documents in October. Although there is a 10 per cent margin of grace, cautious lawyers want to make sure the actual fee falls within the range, even if the final amount may be well off the top of that. Our table takes the top end of any ranges, but it should be noted that the final amount can be lower.
Competitive bids can be lucrative
The process running up to a deal being secured can have a major impact on fee levels. In March, Ashurst saw an offer from US private equity group TPG Capital to buy its client GlobeOp Financial Services, the hedge fund administrator, topped by SS&C Technologies Holdings.
When SS&C, advised by Clifford Chance and WilmerHale, came along, GlobeOp found itself the subject of a bidding war. This meant a higher sale price: TPG’s offer document filed in February 2012 valued GlobeOp at £508m, compared with the £572m SS&C offered in its March proposal.
Legal fees incurred by TPG, advised by Linklaters partners Carlton Evans and Charlie Jacobs, were estimated at £7m excluding VAT, charged on an hourly rate, with the amount described in the filing as an estimate based on the time charged up until publication of the document and an estimate of the time required to complete the offer.
“Such an estimate is uncertain and depends on a number of factors including, inter alia, in connection with antitrust and regulatory approval process,” the document states.
The final amount possibly never hit the £7m figure as the offer was trumped.
SS&C’s fees of approximately £5m, most of which are understood to have gone to Clifford Chance, included the same caveats as the TPG fee disclosure but are £2m lower despite the bid being higher.
But the Ashurst fees stand out in particular. The TPG offer document has GlobeOp’s fees as £900,000 to £1.1m. By the following months’ filing, however, these had risen to an amount ranging from £1.75m to £2.1m - showing how lucrative competitive bid processes can be for advisers.
“As the expected bidders would be from private equity and it was a public deal with a Luxembourg incorporated target, we were able to pitch a team that covered all those bases to the highest standard,” comments Ashurst global corporate head Stephen Lloyd, who led on the deal alongside fellow corporate partner Jonathan Earle. “The deal had twists and turns, but our relationship with the client and the goodwill built through the deal meant we were able easily to reach a mutually satisfactory outcome on fees.”
The minnows take a bite
The biggest deals of 2012 are largely dominated by magic circle and other elite UK firms, plus occasional US outfits, but a number of smaller firms won market share.
Dickson Minto is the standout minnow, earning up to £1.75m for its role for AG Barr on the Britvic merger and £200,000 acting for Tottenham Hotspur FC owner
Joe Lewis on his offer for Timeweave through vehicle Mayfair Capital Investments.
The Anglo-Scottish firm’s fees include an amount charged for its role as Mayfair Capital’s financial adviser.
Goodman Derrick, which had a turnover of £10.5m in 2011/12, catches the eye with its role for Illinois tyre manufacturer Titan International on its acquisition of Kidderminster’s Titan Europe, spun off from the parent company in 2004. The London firm took the lead UK role and is understood to have taken in the region of 80 per cent of the buyer’s fees, which were estimated at £550,000 to £650,000 but are thought to be towards the lower end of the range. The work which saw Goodman Derrick draft all the documentation - was a referral from an intermediary in the US.
It was the largest takeover since September by acquirer’s legal fees (that is, excluding mergers, which are more lucrative): buy-side fees were roughly double the estimated £303,000 paid by target Titan Europe to Eversheds, led by corporate partner Aleen Gulvanessian. This is partly explained by the fact that Titan International was also issuing Titan Europe US securities as the consideration, and because the target was heavily in debt.
Although Aim-listed Titan Europe was valued at £104.8m, the level of indebtedness puts the enterprise value at roughly £275m.
Michigan firm Bodman, led by Detroit partner Robert Diehl, advised on US matters alongside Quincy-based Schmiedeskamp Robertson Neu & Mitchell, which fielded William McCleery.
Simon McLeod, who led the Goodman Derrick team, gave a broad fee range in the documents to ensure it avoided shooting outside target.
“I allowed a lot of leeway,” recalls McLeod. “At the time I wasn’t quite sure what was coming up. There was a lot of work involved because there was a 350-page prospectus as we were offering US stock.”
Hats off too to Charles Russell, DMH Stallard, Walker Morris, Mincoffs and Muckle, all of whom took roles on deals falling in the top four since September, by fees as a proportion of deal value, as did DAC Beachcroft, which led for IT group Redstone on its acquisition of managed services provider Maxima Holdings, advised by Olswang partner Simon Morgan.
Redstone’s legal spend was estimated at £125,000 for the deal with a value of just £9.9m, while Maxima’s was £110,000. DAC Beachcroft itself received £100,000, with the remaining £25,000 going to of counsel instructed by the firm.
DAC Beachcroft lead partner Matthew Darling confirms that, unlike in most deals, it was agreed that they would produce and handle the scheme document and associated documentation, rather than it being carried out by the target’s lawyers.
“The level of our fees should be seen in light of that,” Darling argues.
“It would not be appropriate for me to disclose what discussions took place between us and the Redstone board on the subject, but I can say that the agreed fee was below the level of fees sought by us at the outset, a reduction having been secured by Redstone chairman Richard Ramsay.
I can also say that what was billed was below what we had on the clock for the deal.”
There is a big gap between truly high-end public M&A giving fees in the millions or tens of millions and the middle and lower end of the takeover market, where deals often involved Aim-listed rather the main-market companies and involve less complexity. But takeovers of Aim-listed entities can nonetheless be lucrative.
DLA Piper, for example, earned an estimated £750,000 for its role acting for established client Invista Real Estate Investment Management on its takeover by Palmer Capital, with international corporate head Charles Severs leading DLA Piper’s team opposite Berwin Leighton Paisner partner Adam Bogdanor for Palmer Capital. Palmer Capital’s fees were estimated at £760,000.
The deal, announced in June, came too early for The Lawyer’s report and neither did it make it into the 2012 top 10, but it is still a chunky fee for an Aim-listed company takeover.
DLA Piper also advised Aim-listed food maker Zetar on its £42.7m sale to German rival Zertus, with Manchester corporate partner Elia Montorio leading opposite a Jones Day team headed by City corporate partner Adam Greaves. DLA Piper’s fees were estimated at £300,000 compared with the buyer’s £200,000, with the offer document indicating an additional 30 per cent discretionary fee paid by the target on completion.
Severs also advised IT services company Tikit Group, another Aim client, on its £64.2m sale to BT, earning an estimated £275,000 for the firm, while BT adviser Freshfields Bruckhaus Deringer took home £500,000.
Severs says the firm’s strategy is to become established advisers to UK corporates, putting it in the right place at the right time for lucrative takeovers, rather than specifically to target takeover mandates. This makes sense, given that buy-side mandates are traditionally more lucrative.
“We don’t target public M&A specifically as a transaction type, but we set out to be relationship lawyers to corporates,” he comments. “If you are relationship lawyers to corporates, one of the things that might be thrown up is a takeover. I’ve acted for Invista since 2006. If you look back at other ones I’ve done, I acted for Tikit prior to the takeover by BT.”
Travers Smith took three public M&A roles between September and December: the Metric deal, on which Aaron Stocks led; 2IL Orthopaedics’ acquisition of main market-listed Corin Group (another Stocks deal) and San Leon Energy’s £61.6m merger with fellow Aim-listed company Aurelian Oil & Gas, on which corporate finance head Spencer Summerfield led for San Leon.
The 2IL deal was the fourth-biggest acquirer fee of the last third of 2012, at £324,346, although a small proportion of this went to Berwin Leighton Paisner, which acted for 2IL’s financial adviser Panmure Gordon. The Travers fee was propped up by the fact that the firm’s client was a consortium of five shareholders who set 2IL up last year: IP Investimenti & Partecipazioni, IDeA Opportunity Fund I, Hunt Capital, Stefano Alfonsi and the John Trustees.
Partner profile: Colin MacNeill
Firm: Dickson Minto
Trained at: Dickson Minto
Partner at the firm since: 2001
Colin MacNeill joined Dickson Minto as a trainee in 1991, becoming partner ten years later. His practice covers public M&A, capital markets and work for large private corporates and investment trusts. His deal pedigree is impressive: MacNeill led for drinks group AG Barr on its £15m acquisition of the Strathmore water brand from Constellation Brands in 2006 and on its purchase of the Rubicon brands in 2008 for £59.8m. He was also the lead partner on the team advising HBOS on the Scottish scheme of arrangement for its multi-billion acquisition by Lloyds Banking Group in 2008. His bumper deal of 2012 was AG Barr’s merger with drinks rival Britvic, in which he acted for AG Barr.
Partner profile: Charles Severs
Firm: DLA Piper
Trained at: Herbert Smith
Partner at the firm since: 2003
Charles Severs heads DLA Piper’s international corporate group. He was at Herbert Smith, where he trained, from 1992 until 2000 and spent a three-year period from 2001 to 2003 at technology fund Vesta Capital and later as a partner at legacy US firm Shaw Pittman (now Pillsbury Winthrop Shaw Pittman).
After joining DLA Piper in 2003 as a partner, he became international head of corporate in 2012 and has overseen the firm’s sustained position as a market leader for volume of M&A deals.
Among deal highlights were his roles for Imagination Technologies Group on its takeover of MIPS Technology, the vendors of Moonpig.com on its sale to Photobox, and Group NBT on its takeover by HG Capital. In 2012 he advised Invista Real Estate Investment Management on its acquisition by Palmer Capital, bringing in an estimated £750,000.
Partner profile: Simon McLeod
Name: Simon McLeod
Firm: Goodman Derrick
Trained at: Slaughter and May
Partner at the firm since: 2011 (since 1990 at SJ Berwin, Lane & Partners and Bird & Bird)
Simon McLeod trained at Slaughter and May but clinched his first partnership role at SJ Berwin in 1990, before moving to Lane & Partners in 2004. He joined Goodman Derrick in 2011 from Bird & Bird, where he was one of the legacy Lane partners who joined on their merger in 2008. Across his career, McLeod has advised the Slovak government on the privatisation of its tobacco industry, Lloyds Thompson on its 1997 merger with Jardine Insurance Brokers, Wickes on its 1996 rights issue and Nova Chemicals on various acquisitions in 1999 from Huntsman Corporation and Royal Dutch Shell and a joint venture with BP in 2005. Last year also saw him advise Titan International on its acquisition of Titan Europe, one of 2012’s biggest deals for buy-side legal fees.