Two years after the Takeover Code transparency rejig, we ask if firms are feeling the benefit, and comb through recent M&A fees
In September 2013 M&A lawyers sailed past a significant marker – it was precisely two years since the disclosure rules in the City Code on Takeover and Mergers (known as the Takeover Code) were revamped.
The new rules aimed to create an environment of transparency. They made it compulsory to release the buyer’s and seller’s estimated legal fees for the bid process, along with a breakdown of how much went to their respective legal, financial and PR advisers.
For a profession known for keeping its ear to the ground this opened up a world of opportunities. And in many ways it has made a significant difference to the way UK public M&A deals are conducted.
“When the disclosure rules were first put together there was little published,” notes Baker & McKenzie global M&A head Tim Gee. “It’s taken a while to build a body of knowledge on public M&A fees but we’re just beginning to see transparency making an impact on fee levels. We’re moving closer to a model where there’s a relatively understood place in the market for a particular kind of job – at least on the buy side.”
By the end of 2013 there was a list of more than 110 public M&A deals fees to compare and contrast. For lawyers and clients alike, they have become a valuable tool in the eternal battle to set pricing at an appropriate level.
“It’s starting to feel more commoditised,” muses one source. “There’s a view of what a reasonable fee is.”
The data is particularly helpful on the bid side of M&A deals, while fees on the target side may disguise undisclosed complications such as counter-bids.
The Lawyer, with help from sister data provider Perfect Information, has identified 25 public M&A offer documents filed between 1 July 2013 and 31 December 2013, seven more than the 18 filed in the first half of the year.
While the deals in the latter part of the year fell short of the total deal value recorded in the first half, the legal fees shelled out by clients increased during the period, from £27m to £38.9m. In both halves of 2013, clients on the buy and sell sides paid out an average of £1.5m in total legal fees.
Once again, legal advisers instructed by the bidding party tended to earn more in fees than those lined up by the target company. In fact, in the second half of the year their combined fees were more than a third higher than those on the other side of the negotiations – £22.4m as opposed to £16.5m.
The only deal to substantially buck this trend was the recommended acquisition of Xenetic Biosciences by General Sales & Leasing (GSL), when DWF was paid an estimated £27,100 by the offeror and Pinsent Masons £540,000 by the target.
The discrepancy was due to the deal’s unusual structure – effectively a reorganisation of Xenetic, which was reversed into US shell company GSL with a view to switching its listing from AIM to Nasdaq. Xenetic initially arranged to pay Pinsents a fixed fee, before topping this up as a result of unforeseen
additional work, partly due to shareholder complications.
The biggest deals of late 2013 were dominated by magic circle and US firms. In fact, beyond the upper echelons Addleshaw Goddard and Ashurst were the only two firms to share more than £1m for their work on a single deal. Both worked for existing clients – Ashurst for Oxford Instruments Nanotechnology Tools and Addleshaws for its target, scientific digital camera manufacturer Andor.
Addleshaws was not the only national firm to make a good showing. Eversheds won a role on four deals, more than any other firm in the second half of 2013. It charged a total of £470,000 for advice on the four deals.
Alongside Freshfields Bruckhaus Deringer, DWF and Pinsents were the only ones to advise on three deals apiece. Freshfields shared a total pot of about £10.6m, while Pinsents made about £865,000 and DWF £633,100.
The bulk of Freshfields’ fees came courtesy of its work for Invensys on its takeover by Schneider Electric. Not only was it the highest-value deal of the year but the transaction with the largest sell-side fees. The magic circle firm picked up between £6m and £7.5m for its role.
Meanwhile, Clifford Chance stands out on the buy side, likely raking in the lion’s share of £7.3m in fees for its advice to Eurasian Resources – the largest sum shelled out by a bidder in 2013. Clifford Chance advised a consortium of ENRC’s founders in their buyout of rival miner Kazakhmys, with Reed Smith also involved for the Kazakh government.
Fee for all
Smaller firms also took a significant bite of total legal fees in the second half of the year, many courtesy of existing relationships with AIM-listed clients. Kerman & Co, Memery Crystal, Muckle and Harrison Clark Rickerbys are notable in this respect, with the former two frequently making an appearances at the top of Thomson Reuters’ AIM adviser rankings.
Bird & Bird partner Simon Fielder, who led the firm’s advice to Earthport on its September 2013 offer for AIM-listed Baydonhill, says: “It’s fairly typical. If you’ve gone through an AIM IPO you’re familiar with the company and build pretty strong relationships with the board of directors. They often give you the first chance to come up with a proposal or bid.”
Harrison Clark Rickerbys, born out of the April 2013 merger between regional firms Harrison Clark and Rickerbys, was picked by AIM-listed Active Risk to advise on its recommended cash acquisition by IT services company Sword Group. The firm took home between £145,500 and £155,000 for its work on the £11.7m deal.
Meanwhile, Memery Crystal scored a role on AIM-listed luxury jewellery brand Theo Fennell’s £2.9m take-private by Mirfield 1964 – a vehicle set up by private investors advised by Trowers & Hamlins, specifically for the acquisition. The deal received 10 extensions from the Takeover Panel, resulting in the two firms taking home about £155,000 and £245,000 respectively – together earning almost 40 per cent of total adviser fees on the deal.
Davenport Lyons earned a substantial chunk of fees on collectible auctioneers Noble Investments’ £45.9m takeover by rare stamps brand Stanley Gibbons, taking home £275,000 of the deal’s total £445,000 legal spend. The firm won a role having worked on Noble’s acquisition of the Fine Art Auction Group earlier in the year.
It has taken some time, but it seems that firms are at last seeing the benefits of the Takeover Code’s requirement for total clarity on fee charged for M&A deals.
Eurasian Resources’ acquisition of ENRC: totallegal fees, £43.4m
This mammoth deal was notoriously complicated to stitch together – partly because both the bidder and target were based in Kazhakstan but also because Eurasian Resources simply did not exist before the wheels of the transaction creaked into action.
To summarise, a trio of ENRC’s founders bought out the 26 per cent stake in the company owned by rival Kazakh miner Kazakhmys. The move took the scandal-mired company private after more than six years on the London Stock Exchange, with support from the Kazakh government.
A raft of legal advisers were involved. Jones Day, which previously advised ENRC on its £3bn IPO on the LSE in 2007, is thought to have taken the bulk of fees on the target side. Freshfields is understood to have scooped a sum for its advice for ENRC’s independent committee.
Clifford Chance, picked thanks to an existing relationship with one of ENRC’s founders, was chosen to advise the offeror. A large team, primarily based in the City, is understood to have taken most of Eurasian Resources’ £7.23m fees for the huge job of piecing together the consortium, financing the deal and tackling antitrust matters. Meanwhile, Reed Smith likely received a cut for its advice to the Kazakh government.
Although not included in the above fees, Linklaters is understood to have pocketed a significant sum for its advice to Kazakhmys.
Notably, ENRC did not skimp on PR fees – quadrupling those paid by its closest sell-side deal.
As one source put it: “The ENRC deal was complicated due to boards, individuals and committees’ reputations being put at risk. There were a lot of stakeholders involved and their reputations were on the line, so there was heavier PR.”
Total fees and expenses: £97.7m
Eurasian Resources: £7.23m
ENRC: Jones Day (Vica Irani); Freshfields Bruckhaus Deringer for ENRC’s independent committee (Barry O’Brien)
Eurasian Resources: Clifford Chance (Tim Lewis and Mark Carroll), Reed Smith for the Kazakh government (Giles Beale)
Financial advisory and
Eurasian Resources: £24.7m
Financial advisers and brokers:
ENRC: Citi, JPMorgan
Eurasian Resources: Sberbank, VTB Capital
Financial arrangements fees:
Schneider Electric’s acquisition of Invensys: total legal fees, £13.9m
After years of speculation over the future of Invensys the company was finally taken public by Schneider Electric in a deal that helped the French company become a global player in the industrial automation industry.
The UK public M&A transaction was the largest of the second half of 2013, by both deal value and total legal fees.
According to the offer document, both Invensys and Schneider were charged in hourly or daily rates. The lawyers involved took home more fees than those for any other UK public M&A deal in the whole of 2013. They raked in more than a quarter of the total advisory fees on the deal, and £4m more than those working on the period’s other high-value deal between ENRC and Eurasian Resources.
Linklaters is thought to have taken the bulk of legal fees from Schneider, although Shearman & Sterling received a cut for its tax and finance advice, and Bredin Prat for its help on French law.
Total fees and expenses: £51.4m
Schneider Electric: £5.6m-£6.4m
Invensys: Freshfields Bruckhaus Deringer (Barry O’Brien, Ben Spiers and Claire Wills)
Schneider Electric: Linklaters (Nick Rees), Shearman & Sterling (Arnauld Fromion) and Bredin Prat (Marc Pittie)
Financial advisory and
Schneider Electric: £9.3m-£14.3m
Financial advisers and brokers:
Invensys: JP Morgan Cazenove
Schneider Electric: Deutsche Bank
2013: calm after the Glenstrata storm
The first half of 2013 was relatively quiet for the M&A market. The standout deal came relatively early on, in the form of William Hill and GVC Holdings’ £485m takeover of gambling group Sportingbet. The £6.85m legal fees were largely split between three firms: Addleshaw Goddard, Ashurst and Nabarro.
Total estimated fees during the period were £26.1m, with legal spend falling as low as £21,000 for the £1.07m takeover of AIM-listed investment group Evolve Capital. Marriott Harrison charged the buyers £10,000, while Evolve paid Memery Crystal £11,000 for its work on the sell-side.
In the whole year no single deal rivalled 2012’s gargantuan Glencore-Xstrata mega-merger, worth £4.18bn. Legal advisers on that deal took home around £38.9m between them – pretty much on a par with the £39m racked up in legal fees by every UK public M&A deal to take place in the second half of 2013 combined.