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Is increased competition between firms starting a price war?
Last week I interviewed BLP managing partner Neville Eisenberg. Much of the conversation was about the firm’s difficult year in 2012/13 and what it was considering in terms of strategy and process. But perhaps the most eye-catching assertion Eisenberg made was that BLP’s life has been made much more difficult over the past few years by the practice among the top 10 firms for aggressively undercutting on price. It’s fair to say that the online reaction to this was sceptical.
Larger firms have traditionally been able to weather the odd bit of low-balling if it’s for the greater good of snaring a splendid mandate. Particularly if it’s a defensive move to keep out new entrants that want to muscle in on a particular market segment or client relationship.
However, I’m not sure I buy the undercutting argument. For a start, you don’t make an average PEP of over a million if you consistently lowball. I have no doubt that aggressive pricing is out there but as Eisenberg acknowledges, that’s the way of the world nowadays. Boom-level fee quotes are rightly unacceptable, and any firm that complains about it is on a hiding to nothing.
With rather cute timing, this week we are running our regular half-year analysis of M&A fees, which we carry out in conjunction with sister organisation and data provider Perfect Information. There isn’t a Glencore-Xstrata behemoth this time around but total legal fees in the second half of 2013 were £39m, up from £26.1m in the first half of the year. The increase came not from fee rises per se but from a general uplift in corporate activity.
We’re also publishing a panel on M&A fees where we asked partners from Ashurst, Herbert Smith Freehills, Linklaters and Norton Rose Fulbright for their views on the current state of play.
Lawyers, initially suspicious (there’s a surprise), now welcome the increased transparency on fee structures in public M&A. The overwhelming consensus is that the new regime has led to greater client focus and creativity in terms of fee arrangements. Our contributors report that there is a greater consideration of the risk/reward ratio.
Risk-sharing has become embedded in corporate transactions generally, not just in public M&A. It also means that lawyers have had to become an awful lot better at offering quantum of fees in different scenarios. Not so much aggressive, more creative.