The beauty in the M&A fees breakdown

We should all tip our hats to those corporate regulators over at the Panel on Takeovers and Mergers. Why? It’s thanks to their rule change in September 2011 that we’re now granted a sneaky peak at the fees being charged by law firms for UK public M&A work.

Our regular analysis of the stats always sheds light on all sorts of interesting facts and figures. This time round, we learnt that Freshfields Bruckhaus Deringer charged up to £7.5m to Invensys for its advice on the company’s offer from Schneider Electric. Meanwhile, Clifford Chance and Reed Smith shared a meaty £7.2m for helping Eurasian Resources navigate its complex takeover of Kazakh mining company ENRC (3 February 2014).

However, there are plenty more details where those came from. In addition to legal fees, the Takeover Code’s rules demand the disclosure of fees paid to every adviser – from brokers to public relations firms.

Of the 25 public M&A deals subject to the code between July and December 2013, lawyers pocketed an average of 29.4 per cent of all the fees shelled out by clients.

The most generous proportion of the bunch paid their legal advisers 69.5 per cent of total fees, while those pocketing the smallest slice took home 9.9 per cent of the total. Perhaps surprisingly, both of the deals in question were among the top six transactions by total fee payout in the second half of 2013.

Let’s start with Rothermere Continuation Limited’s (RCL’s) buyout of the remaining voting shares in the Daily Mail General Trust (DMGT). It was a relatively simple affair, for which lawyers received the bulk of overall adviser fees. Freshfields’ £595,000 from the target and Slaughters’ £375,000 from the bidder amounted to 69.5 per cent of the total shelled out by both to advisers on the deal.

Freshfields’ received 63.5 per cent of fees on the sell side – DMGT paid £30,000 to its accountants and £270,000 to its financial adviser Lazard. Meanwhile, Slaughters’ took home 81.7 per cent of the total buy side fees. RCL also paid its accountants £9,000 and its financial adviser Rothschild £75,000 – the latter amount being among the smallest financial adviser sums paid in the second half of 2013 for UK public M&A work.

In many ways, the high proportion of legal fees is to be expected on the RCL/DMGT deal. It did, after all, take the form of a recommended scheme of arrangement. It was contractually weighty and had no financing element involved.

At the other end of the spectrum, it’s worth casting an eye to Eurasian Resources’ takeover of Kazakh miner, ENRC. Despite this mind-bogglingly complex deal being among the most lucrative by legal fees during he period, the £9.7m raked in by lawyers still accounted for a relatively paltry 9.9 per cent of total fee spend (25 June 2013).

Imagine an issue that could potentially complicate a deal, then imagine 10 more. The buyout of miner Kazakhmys from ENRC by a consortium of the company’s founders had the lot – regulatory difficulties, hostile elements, cross-border issues, and to top it all of an investigation by the Serious Fraud Office.

Jones Day and Freshfields took home an estimated £2.5m for their advice to ENRC and its independent committee, while Clifford Chance and Reed Smith shared £7.2m from the acquiring consortium that was given a helping hand from the Kazakh government.

These sums are not to be sniffed at, but constituting 9.4 per cent and 11.8 per cent of the clients’ total fees respectively, they’re overshadowed by the enormous amounts paid to financial advisers on the deal. The target side shelled out £17.5m – primarily to Citi and JPMorgan Cazenove – while the bidder paid £24.7m for financing and advice from Sberbank and VTB Capital out of Moscow. Societe Generale advised from Milan but didn’t provide financing.

It’s thought that a chunk of ENRC’s £17.5m total was paid to Morgan Stanley and Deutsche Bank – the targets initial brokers who stepped back from the project as the mining group became increasingly embroiled in controversy.

Interestingly, ENRC also gifted a bulky £1m to public relations firm FTI Consulting for its expertise on the transaction. No other company came anywhere close to paying a six-figure sum PR sum in the whole of 2013.

“The ENRC takeover had a rollercoaster ride,” said one source close to the deal. “It 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.”

Have a browse over the table below to see which firms were the big winners when it came to total UK public M&A fees in the second half of 2013.

Legal fees as proportion of total adviser fees on UK public M&A, 1 July – 31 December 2013
Target Offeror Legal fees as % of total fees
Daily Mail and General Trust Rothermere Continuation Limited 69.5
Westhouse Holdings Somers  58.09
Savile Group Penna Consulting 52.63
Xenetic Biosciences  General Sales & Leasing 42.85
Theo Fennell Mirfield 1964 39.8
Baydonhill Earthport 39.61
Charteris Sword Soft 39.31
Active Risk Sword Aquila 35.72
Water Hall Petards 33.8
TAP Biosystems Group Sartorius Stedim Biotech 30.44
Mediwatch Laborie 29.7
UFG Renovo 29.47
Invensys Schneider Electric S.A. 27.04
Islamic Bank of Britain Al Rayan  27.03
Delcam Autodesk Development 26.07
Vindon Healthcare Source BioScience 20.41
Andor Technology Oxford Instruments Nanotechnology Tools Holdings 18.1
Noble Investments The Stanley Gibbons Group 17.81
H R Owen Berjaya Philippines 17.54
Desire Falkland Oil and Gas  16.94
AZ Electronic Materials Merck 14.11
Abbey Protection Markel Capital Holdings 14.07
Fiberweb PGI Acquisition  13.47
Equatorial Palm Oil KL-Kepong International 12.24
ENRC Eurasian Resources 9.93