Lawyers vs bankers

Bankers stand head and shoulders above lawyers in the M&A fee stakes but growing deal complexity means the gap is closing

If there is one example that best explains why banks charge so much more than lawyers on M&A it is William Hill and GVC Holdings’ acquisition of Sportingbet (see box). 

Exhibit one of our five example deals is a recent global and high-profile deal that attracted the finest of the City’s professionals, if not the world’s. 

But there was something distinctly unbalanced about the line-up on the multibillion-pound blockbuster. One side had four major banks acting for it. The other had a large roster of bankers, albeit only from two institutions. Each one fielded a massive team – 30 or 40 bankers were acting for each of the two parties in total.


By contrast, the lawyers hunted in far smaller packs. Each side instructed a team led by two partners as well as between one and four associates at any one time, with around 20 associates across a firm involved in some way at some point. But not all at once.

The deal followed the usual style for a transaction of that size. At the banks there are partner-style individuals on both sides covering each base. There is Mr M&A. There is Ms Sector. Mr Corporate Broking, who negotiates with institutional investors and shareholders. Mr Client Relationship, who will have known the company for years and kept on the cocktail trail while deal activity was zero. There will also be someone high up in the bank, say a regional M&A head, who might know the CEO well. Then there is Ms Debt, Ms Equity Capital Markets, maybe even the odd cameo role for the chairman. Deals will be swarming with “senior bobbies”, as one lawyer puts it.

Little wonder, then, that lawyers’ fees are dwarfed by the amounts spent on bankers’ advice. Research by The Lawyer, sourced with the aid of sister data provider Perfect Information, shows that financial adviser and brokers’ fees on public M&A for the first six months of 2013 were double the legal fees for the same period, at £46.1m, compared with lawyers’ £26.1m. Brokers’ fees made up 46.4 per cent of all M&A fees and expenses, while legal fees constituted 26.3 per cent of the total figure of £99.3m.

On only four of the six months’ 18 public offers did the legal fees exceed financial advisory fees. Even then, in one of these, the lenders’ £429,000 financial arrangement fees for Dickson Minto client Toscafund and Hogan Lovells client Ares Capital’s joint bid for troubled health and social care recruiter Healthcare Locums, advised by Dentons, tipped the balance in the favour of the banks.

Heavy losses

The sheer size of the numbers in play in the biggest deals means lawyers appear to lose out heavily. Kier Group’s £211.5m acquisition of construction outfit May Gurney Integrated Services (see box) yielded legal fees worth £2.74m to firms including Linklaters for Kier and Eversheds for May Gurney, but this was only 16.5 per cent of the total fees and expenses for that deal of £16.6m, including the £9.2m that went to  bankers – making it the least lucrative for lawyers in comparison with other deal costs, despite being the fourth-biggest-grossing for law firms.

A common argument among senior corporate lawyers is that bankers’ fees have always eclipsed law firms’ fees, but that lawyers are taking a more central role on major deals than they were, with the gap slowly closing.

“Historically, [banks’ fees] have been high,” says one corporate partner. “Ten years ago the investment banks led with the [Takeover] Panel. That’s not the case anymore. I suppose in the purest sense [the banks] are the ones that go in and beat up the target and get the deal. They would say they have to give the cash confirmation so there’s some element of risk there. But of course, lawyers are becoming a bit more flexible.”

Eversheds partner Stephen Nash led for May Gurney on the successful takeover bid by Kier and a previous trumped proposal from Costain Group, earning the bulk of May Gurney’s £1.4m legal fees for the two offers combined.

“Deal size tends to dictate [the size of the bank’s fee],” Nash says. “The smaller the deal, the closer the legal and banking fees are likely to be to one another. Things that might increase legal fees would include the levels of due diligence, competition filings in different jurisdictions, the number and complexity of share option schemes. However, even on small but complex deals the bankers’ fees tend to outstrip the legal fees.”

While it is not uncommon for a firm’s senior partner or head of corporate to make an appearance during a deal, large teams of bigshots whose job it is to work their contact books are rare.

“Law firms have fewer cocktail partners,” says one corporate lawyer.

Numbers game

In deals such as Toscafund and Ares Capital’s offer for Healthcare Locums (see box) large numbers of bankers working out of several banks on a single takeover is a frequent occurrence, partly because deal-doers are keen to get the key players on their side to block them from acting for another client on the same matter. In addition, some argue the post-credit crunch dearth of M&A has meant many banks lack up-and-coming staff with enough experience, forcing them to put the senior, expensive heads on deals.

Plus, when it comes to the fee structure itself, there is the question of risk-sharing.

“Historically, there’s just been a different approach where lawyers charge by the hour. Bankers typically do a lot of work where they don’t get paid, so when they do they get paid on a different measure,” says Linklaters partner Charlie Jacobs, who recently led for miner Kazakhmys alongside fellow partner Nick Rumsby on a bid by a consortium to take private Jones Day client Eurasian Natural Resources Corporation, in which Kazakhmys is a major shareholder. Legal fees have not yet been disclosed but are expected to be among the highest of 2013 so far.

“Investment banking M&A fees are probably coming down from the boom time – in the old days it was a percentage of the deal size but now that’s a starting point,” Jacobs adds. “Clients are now saying – why should I be paying a percentage of a deal size, where the deal was not brought to me?”

“Probably, legal fees have caught up a bit but that’s partly because of a recognition that lawyers are doing more,” says Hogan Lovells partner Tom Brassington, who led the team acting for Ares on the Healthcare Locums deal. The complexity of the related restructuring meant legal fees were just over £1.2m for the deal, in contrast to brokers’ £800,000.

The deal size arrangement seems still to hold. Combined fees for brokers on both sides are generally around 2 to 3 per cent of the deal value, ranging from 1 per cent to 12.6 per cent, while total legal fees stretch from 0.7 per cent to 18.9 per cent and are typically more in the 1 to 2 per cent range.

Shareholder circulars, that since September 2011 require disclosure of estimated expenses and adviser fees broken down by type, often indicate performance-based fees for banks. This is becoming more common in the legal profession – Dickson Minto’s near-£1.75m fee from AG Barr for its merger agreement with Britvic last year included £1.05m conditional on completion – but is still not commonplace.

“I think law firms are increasingly willing to entertain discounts on aborts and success fees on completion,” Jacobs points out.

TLT corporate partner Richard Tall, who advised BDO as financial adviser to Seven Technologies on its £6.9m acquisition of Datong, comments: “The biggest effect of fees on deal economics comes in the mid-market. The fees disclosure regime provides clients with a ready comparator for the fees proposed by their advisers, and
the ammunition to cap fees and control costs. Advisers will have a choice – accept what is on offer and work to that, or lose the work to more efficient and innovative

Lawyers say bankers also spin the line that they take on more risk because their name goes on the public documents so they risk reputational damage should the deal go wrong. Similarly, those institutions playing the cash confirmation role take on considerable liability.

Fitting the bill

Asset manager Schroders’ £424m takeover of competitor Cazenove Capital was an example of how banks’ and law firms’ billing practices remain distinctly different. Despite Cazenove not being publicly listed, its large number of shareholders required that the deal comply with Takeover Panel rules on disclosure. Schroders, advised by Slaughter and May partner Oliver Wareham, spent £1.58m on legal advice, while Cazenove paid £1.45m to firms including Herbert Smith Freehills, where partner James Palmer led next to offshore firm Ogier’s Raulin Amy. 

While no mention is made in the documents of how the legal fees are broken up, Schroders has gone public with its £250,000 discretionary uplift to financial adviser Gleacher Shacklock, meaning its fees range from £1.67m to £1.92m, or 0.4 to 0.5 per cent of the deal value. Gleacher took its own legal advice from Ashurst partners Adrian Clark and Karen Davies, with these fees usually included within the acquirer’s fee figure.

Similarly, DMCI Holdings’ £24.9m mandatory cash offer for Toledo Mining Corporation saw the target’s financial adviser, RFC Ambrian, receive £296,000 comprising a fixed element of £71,000 and a further fee of £225,000 based on it being 0.9 per cent of the takeover value. Toledo’s legal advice – worth £125,000 – was led by Thrings partner Kevin McGuiness, while Link-laters Hong Kong partner Robert Cleaver guided DMCI, which paid out £300,000 on lawyers.

Risk taker

Africa-focused conglomerate Lonrho’s £174.5m sale to FS Africa, the Swiss investor group advised by Slaughters and Africa’s ENS, indicates there is some element of risk sharing even among the lawyers, with both parties factoring completion and other changeables when estimating legal fees (see box). Lonrho was advised by Thomas Eggar, South African firm DLA Cliffe Dekker Hofmeyr and Erskine Chambers’ Andrew Thornton.

Kier, meanwhile, took a similar approach by reserving the option to pay a discretionary fee to Linklaters – whose team was led by partner James Inglis – and broker Numis for its role advising on its acquisition of May Gurney but stopped short of capping the uplift as it did with financial adviser JPMorgan Cazenove (see box, page 20). Yet even with a performance bonus the £1.34m paid to advisers including Linklaters and the brokers’ lawyers at Simmons & Simmons is barely a touch on the £4.1m-£4.6m going to Kier’s banks and a further £1.68m each to the lenders providing the financing arrangements.

Lawyers may feel the fee gap is closing, but it is still there to be seen.

William Hill and GVC Holdings’ acquisition of Sportingbet


Value: £485m

Total fees and expenses: £30.729m-(£32.729m)

Legal fees (fee structure):

Total: £6.1m-£6.85m

Sportingbet: £1.1m-£1.35m (hourly)

William Hill: £3m-£3.5m (hourly)

GVC: £2m (not stated)

Legal advisers (listed by allocation of fees):

Sportingbet: Nabarro (Graham Stedman, corporate); Stephenson Harwood (Jayesh Patel, banking, for convertible bond trustee Capita Trust); Herbert Smith Freehills (Annabel Gillham, for employees); Erskine Chambers (Andrew Thornton); Addisons Lawyers (Jamie Nettleton, for Australian advice)

William Hill: Ashurst (Anthony Clare, Jonathan Earle, corporate); Skadden Arps Slate Meagher & Flom (James Healy, cash confirmation for Citigroup)

GVC: Addleshaw Goddard (Nick Peary, corporate); DLA Piper (Hilary Stewart-Jones, regulatory)

Financial advisory and
brokers’ fees:

Sportingbet: £5.964m

William Hill: £7.9m-£9.15m

GVC: £750,000

Financial advisers and brokers:

Sportingbet: Lazard (Cyrus Kapadia, Aamir Khan); Canaccord Genuity (Erik Anderson, Bruce Garrow)

William Hill: Citi (Jan Skarbek, Andrew Seaton); Investec (Chris Treneman James Rudd)

GVC: Daniel Stewart (Paul Shackleton, David Hart)

Financial arrangements fee:

William Hill: £7.5m

Lenders: Consortium including Barclays, Lloyds TSB and RBS

There was no shortage of lawyers to go round on this deal, the biggest of the year so far by legal fees and the biggest buy-side fee. 

Sportingbet and William Hill both factored in a fee range but were charged by the hour for legal advice, according to the shareholder filings. Financial advisory fees paid by William Hill were subject to more of a range, but no reason is given. Non-lawyers did especially well on this transaction, with legal fees only 20.9 per cent of total fees and expenses, making it the fourth-least lucrative deal by this measure.


Kier Group’s acquisition of May Gurney Integrated Services

Value: £211.5m

Total fees and expenses: £16.03m-£17.67m

Legal fees (fee structure):

Total: £2.24m-£2.74m

May Gurney: £900,000-£1.4m (hourly or daily; variation depends on completion)

Kier: £1.34m (plus discretionary fee to Linklaters)

Legal advisers:

Kier: Linklaters (James Inglis), Simmons & Simmons (Chris Horton and Edward Baker) for JP Morgan and Numis

May Gurney: Eversheds (Stephen Nash), Erskine Chambers (Andrew Thornton)

Financial advisory and brokers’ fees:

May Gurney: £4.6m

Kier: £4.1m-£4.6m. May pay discretionary fee to JP Morgan Cazenove of up to £500,000 and a discretionary fee to Numis

Financial advisers and brokers:

May Gurney: FA: Cannacord Genuity; B: Peel Hunt

Kier: FA – JP Morgan; B: Numis

Financial arrangements fee:

Kier: £1.68m

Lenders: HSBC, Lloyds TSB, RBS, Santander

Kier’s successful bid trumped a recommended all-share merger offer by Costain Group, advised by Slaughter and May partner Andy Ryde, which yielded estimated fees of £1.87m by Costain and a performance-based £3.1m fee to its brokers and financial advisers, led by John Deans and Neil Thwaites
at Rothschild and David Currie and James Rudd at Investec. 

Sells-fees on the shelved deal – mostly to Eversheds, where Nash led – were lower than on the final one: £500,000 to £900,000 charged on an hourly or daily basis, with a variable component dependent on completion. The updated sell-side fees of £900,000 to £1.4m include fees incurred during the Costain bid.



Toscafund and Ares Capital’s offer for Healthcare Locums

Value: £6.36m

Total fees and expenses: £2.72m

Legal fees (fee structure):

Total: £1.203m

Healthcare Locums: £107,808 (for takeover offer); £495,026 (for restructuring) (billing method not stated)

Toscafund and Ares: £600,000 (not stated)

Legal advisers:

Healthcare Locums: Dentons (Jeremy Cohen); Herbert Smith Freehills (Ian Yeo) and Minter Ellison (Ian Walker) for target’s banks

Toscafund: Dickson Minto (Andrew Todd); BLP (Nicholas Myatt)

Ares: Hogan Lovells (Tom Brassington)

Berwin Leighton Paisner
partner Nicholas Myatt acted
for Canaccord Genuity,
financial adviser to both Toscafund and Ares

Financial advisory and brokers’ fees:

Healthcare Locums: £300,000 (not stated)

Toscafund and Ares: £500,000 (not stated)

Financial advisers and brokers:

Healthcare Locums: Investec (Gary Clarence, Patrick Robb, Daniel Adams)

Toscafund and Ares: Canaccord Genuity (Andrew Speirs, David Tyrrell)

Financial arrangements fee:

Toscafund and Ares: £429,000

Lenders: include National Australia Bank

Troubled health and social care staff provider Healthcare Locums went through a restructuring earlier this year after admitting difficult trading conditions in January. It said that its lenders would reset the company’s covenants and defer the start of the repayment of the loan principal until June 2013 and that it would require additional capital. 

The offer from Toscafund and Ares was worth only £6.36m, but adviser fees were disproportionately high as a result of the size of the restructuring. Deal documents state legal fees of £107,808 for the bid itself but £495,026 for the restructuring. The offer
was declared unconditional in April but has been extended until 19 July.


CPI Group’s acquisition of Ablon Group

Value: £30.81m

Total fees and expenses: £685,550

Legal fees (fee structure):

Total: £275,000

Ablon: £75,000 (not stated)

CPI: £200,000 (not stated)

Legal advisers:

Ablon: Adams & Remers (Stuart Robertson); Carey Olsen (Ben Morgan, Tony Lane)

CPI: Baker & McKenzie (Helen Bradley); CHSH (Johannes Buchinger, Heinrich Foglar-Deinhardstein); Collas Crill

Financial advisory and brokers’ fees (fee structure):

Ablon: £110,000 (comprises completion payment of £75,000, the minimum amount, with the ability to increase this to a maximum of £100,000 should instruction become protracted. Additional £10,000 relates to a separate non-variable fee)

CPI: £200,000

Financial advisers and brokers:

Ablon: Beaumont Cornish (Roland Cornish, Emily Staples)

CPI: Grant Thornton (Philip Secrett and Salmaan Khawaja)

Hungarian real estate developer Ablon Group turned to White & Case City partner Allan Taylor
in the run-up to the takeover offer from Czech property investment business CPI Group. The US firm stepped down from the role in late February, ahead
of the deal, and as a result its fees are not included in the stated estimates. 

Ablon switched to Lewes-
based Adams & Remers, which fielded London partner Stuart Robertson for advice on the bid. Taylor had previously advised Ablon on its IPO in 2007 and
its move from AIM to the main market in 2011. While no
details are given of the structure of the lawyers’ fees, which
were not far off the bankers’ fees, CPI financial adviser Beaumont Cornish was paid based on a £25,000 completion payment on top of the basic fee.

FS Africa’s acquisition of Lonrho

Value: £174.5m

Total fees and expenses: £5.26m-£5.71m

Legal fees (fee structure):

Total: £800,000-£2.33m

Lonrho: £300,000-£325,000 (dependent upon factors including the completion, client satisfaction and exchange rate movement)

FS Africa: £500,000-£2m (dependent on factors including completion)

Legal advisers:

Lonrho: Thomas Eggar (Daniel Bastide), DLA Cliffe Dekker Hofmeyr (David Pinnock), Erskine Chambers (Andrew Thornton)

FS Africa: Slaughter and May (Mark Zerdin), ENS (Michael Katz, Lee Mendelsohn)

Financial advisory and brokers’ fees (fee structure):

Lonrho: £1.5m (not stated)

FS Africa: £750,000-£1.5m (dependent upon factors including the completion, client satisfaction and exchange rate movement)

Financial advisers and brokers:

Lonrho: Jefferies (Sara Hale, Andrew Bell)

FS Africa: Investec (Alex
Snow, Garry Levin, David Anderson)

Thomas Eggar’s role on this
deal is eye-catching for its size and prominence and the
firm’s modest stature. It has
been advising Lonrho for roughly five years since the period after
its AIM listing, on which Kerman & Co advised the company. Thomas Eggar partners Oliver Mayes and Garry Ramsden started working with the conglomerate on the aviation side, with Southampton partner John Riddick and Gatwick partner Daniel Bastide, both corporate, now managing the relationship. Bastide led on its convertible bond issue in 2010 and its promotion to the main market in 2011.

The latest deal produced relatively high legal fees, at
77.5 per cent of the financial advisers’ fees and 40.7 per cent of total deal fees and expenses. This was partly thanks to the complexity of associated matters such as the target’s secondary listing on the Johannesburg Stock Exchange’s alternative exchange, AltX, as well as the existence of Lonrho American depository receipts and convertible bondholders.

While Lonrho’s fee range was small, FS Africa’s legal advisers – primarily Slaughter and May – were in for a £1.5m uplift conditional on the deal going ahead, with the final fee ranging from £500,000 to £2m.


Public M&A off to a slow start in 2013

The first six months of 2013 have been slow for the public M&A industry. William Hill and GVC Holdings’ £485m takeover of gambling group Sportingbet was the standout deal, providing £6.85m in legal fees mostly to Addleshaw Goddard, Ashurst and Nabarro. 

There was no mega-deal to match the Glencore-Xstrata merger from the second half of 2012 which skewed the deals tables last year and contributed £38.9m of the estimated £50.1m spent on lawyers’ time in the past four months of the year.

So January to June 2013 looks quiet. Total estimated fees are only £26.1m, with spend going as low as £21,000 for the £1.07m takeover of AIM-listed investment group Evolve Capital by a concert party. The fees – £10,000 charged by Marriott Harrison for the buyers and £11,000 by Memery Crystal for Evolve – were minimal because the scope of the firms’ roles was unusually small, with brokers’ fees also rock-bottom.

A handful of deals were called off. Costain’s £164.5m bid for May Gurney was outdone by Kier (see box), while an Ashfords team led by chairman and corporate head Simon Rous successfully defended Coventry-headquartered home safety product maker Sprue Aegis against a hostile £34.8m takeover bid from American consumer products group Jarden Corporation, which turned 

to Burges Salmon. Estimated
fees on the Jarden bid were £50,000 by Sprue Aegis and £200,000 by Jarden, but it is not clear what impact its failure had on the total.