UK fee disclosure shows bankers rule the M&A roost

January 23, 2012

By Quentin Webb

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

When it comes to carving up M&A fees, bankers rule. That’s the revelation from new UK rules that force buyers of listed companies to disclose how much they pay their armies of advisers. It’s too early to judge whether the new regime, probably the world’s most transparent, will force down takeover fees. But the initial data provides hard evidence of just how much banks benefit.

Since the rules changed in September 2011, there have been only a handful of sizeable takeovers. In the case of Colfax’s takeover of engineering group Charter in October, and Theo Mueller’s recent purchase of dairy firm Robert Wiseman, bankers out-billed lawyers by a factor of seven or eight.

Half of the 106.4 million pounds in fees from Colfax-Charter went on financing, and another 35 percent on financial and broking advice. Lawyers took home just 11 percent of the total. In the Mueller-Wiseman deal, where the financing was simpler, 75 percent of the fees were for M&A advice.

True, lawyers did a bit better out of a third deal: Canaccord’s purchase of broker Collins Stewart. Perhaps that reflects knottier legal issues in financial services transactions. But even then, legal fees were just a fifth of the total. In all three deals, other advisers were little more than a rounding error: for example, public relations firms carved out just 1 percent of the total.

It’s not surprising that banks take the lion’s share. In Britain at least, they play a far bigger role in crafting deals than their nearest rivals, the lawyers. Banks also have multiple ways to rack up big bills: they can charge for M&A advice, for liaising with shareholders, and for financing.

Besides, although there can be entrepreneurial exceptions, most law firms still bill by the hour, which means they get paid whether or not a deal goes ahead. As bank payouts are usually tied to success, fees on completed transactions compensate for unpaid work on failed deals.

For companies, scrimping on advisory costs could be a false economy. But with the political and public mood febrile, transparency may shame buyers into driving harder bargains with their advisers. If so, the data leaves little doubt about who has most to lose.

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