Show me the money

There is still money to be made by advising on M&A – lawyers just need to know where to look

The likely merger between Glencore International and Xstrata has been the talk of the business world since news of the combination broke in February. But research by The Lawyer revealed it was not only one of the biggest mining and commodities tie-ups in recent years, but also the most lucrative UK public takeover for lawyers for the past 12 months.

The merger – valued at around £40bn – generated £24.8m in legal fees for the law firms advising on the deal, which included Linklaters for Glencore and Freshfields Bruckhaus Deringer for Xstrata. Glencore’s fees were estimated at £11.8m, while Xstrata’s were £13m.

Following the September 2011 revamped Takeover Code, companies have to declare how much they expect to spend on legal advisers for the deal.

The new rules have produced interesting trends. For one thing, it is clear that, when taken as a percentage of the deal value, the biggest deals do not necessarily yield the highest fees. Based on a reported deal value of £44.3bn, the Glencore-Xstrata merger produced legal fees of just 0.1 per cent of this.

The second-placed deal by total legal fees, the acquisition of Charter International by Colfax, produced an estimated £11.35m in legal fees, or 0.8 per cent of the £1.51bn deal value. Slaughter and May and US firm Shearman & Sterling advised Charter, which paid £5.95m in fees. US firm Skadden Arps Slate Meagher & Flom took the bulk of Colfax’s £5.4m fees.

At the bottom of the chain, however, there were a number of relatively small deals that gave law firms healthy fees. US insurance group AmWINS’ acquisition of UK rival THB Group had a deal value of just £31.8m, but the fees that came from it were £2.4m, representing 7.6 per cent of this amount. Clyde & Co took THB’s £995,000 in fees, while an estimated £1.41m went to AmWINS adviser Edwards Wildman Palmer.

The reasons for this are no doubt that certain sectors such as insurance are highly complex, while, at the same time, lawyers often set a lower cap on fees, meaning clients enjoy economies of scale on big deals but pay over the odds for smaller ones.

In terms of winners and losers, Linklaters comes out as one of the leaders in public M&A, with the magic circle firm advising on four of the top 20 deals ranked by legal fees. Slaughters has been similarly successful, advising on at least three of the top 20 deals by legal fees and winning a role for an advisory bank involved in a fourth.

DLA Piper makes frequent appearances, while Lawrence Graham and Osborne Clarke get a few mentions in mid-level deals. Norton Rose does relatively well in the middle and upper markets.

The data, sourced through The Lawyer’s sister data provider Perfect Information, shows there is plenty of work and money out there for legal advisers. The challenge is to hit that sweet spot when firms are taking home the highest fees possible for the size of the deal.