Here’s the bad news for law firm corporate heads: when it comes to M&A, lawyers are still nowhere near bankers in terms of fees as percentage of the deal. Here’s the good news: the gap is closing. There’s always been reluctance on the part of clients to allow lawyers value billing on M&A, but that option is narrowing for bankers too. M&A is no longer a cash cow for financial advisers; at the moment better money is to be made in financing and distribution.
Our exclusive survey of billing on public M&A reveals that financial advisers’ fees average around 2 to 3 per cent of the deal value while total legal fees on deals are in the 1 to 2 per cent range. This hints at an interesting dynamic. Several corporate lawyers say bankers are simply less active in origination nowadays; they don’t find the deals, they just execute. At the same time, as CEOs become increasingly terrified of regulatory risk lawyers have inveigled themselves a more visible place at top table. Deals are more partner-heavy; compared to the boom years where documents were pretty much signed on a Post-It note, lawyers are seen as contributors in assessing and structuring the deal.
Linklaters is an intriguing example. In 2011/12 the magic circle firm’s corporate turnover was £464.6m, representing 38.5 per cent of total firm revenues. For Links, maintaining that level of income isn’t just about snagging beasts like the Glencore deal but embedding itself into clients’ corporate consciousness. This snippet gives you a clue: filings show the legal fee for Kier Group’s bid for May Gurney Integrated Services was £1.34m – but on top of that there was a discretionary uplift for Linklaters. It’s one of a growing number of examples that show leading law firms are now adept at negotiating fee arrangements where value, rather than hourly rate, is accounted for.
Of course, in private equity these arrangements have been common for some time, but the survey underlines the success of top law firms in colonising the boardroom. As bankers have become less trusted, it rather looks like top law firms have made the most of it.