Agencies
Investment bankers are changing how they ask to be paid in a bid to preserve and boost fee revenue they generate from advising companies on mergers and acquisitions, as more big deals face challenges by regulators.
Many of these fees are awarded only if a transaction is completed. Bankers have been pushing to get paid even when a deal is thwarted by regulators, and are charging more for services paid irrespective of whether a transaction closes, interviews with more than a dozen dealmakers showed.
The banks’ tactics include taking a larger slice of the breakup fee paid by the acquirer to the target for failing to close a deal, and charging more for "fairness opinions” they provide to companies on whether they should sell themselves.
At stake is the dealmaking revenue of the top investment banks in North America and Europe. While banks that are listed on the stock market do not break down the source of their fees in their investment banking revenue disclosures, the dealmakers said that fees paid even when transactions fail have helped boost profits this year amid a flat market for mergers and acquisitions and a rise in the challenges to deals.
U.S. antitrust regulators filed 50 enforcement actions against mergers in the 12 months to the end of September 2022, representing the highest level of enforcement activity in over 20 years, according to the most recent data published by the Federal Trade Commission and U.S. Department of Justice.
In Europe, the European Commission issued two prohibition decisions in 2022 and one in 2023 against deals, compared with none in 2021 and 2020. "The European Commission is more likely than ever to block a merger,” White & Case lawyers wrote in a note to clients earlier this year.
Political opposition amid rising economic protectionism is also a growing risk and has led, for example, to U.S. officials casting doubt on whether Japan’s Nippon Steel , opens new tab can complete its $14.9 billion acquisition of U.S. Steel , opens new tab amid U.S. labor union opposition.
Top investment banks, including Goldman Sachs , opens new tab, JPMorgan Chase , opens new tab and Morgan Stanley , opens new tab, are pushing to be paid as much as 25% of the breakup fee on some transactions, depending on the transaction’s size, according to the dealmakers who were interviewed.
That is up from a historic average of receiving about 15% of the breakup fee, they added.Goldman Sachs, JPMorgan, and Morgan Stanley declined to comment.
Investment banks have also been making roughly 20-25% of their advisory fees to companies selling themselves subject to delivering fairness opinions, which are paid even if a deal does not close. Referred to in the industry as "announcement” fees, these are up from an average of 5% to 6% of the total advisory fees during the previous decade, according to several dealmakers and regulatory filings.
In the case of JetBlue’s , opens new tab failed $3.8 billion takeover bid for Spirit Airlines , Spirit’s advisers Barclays and Morgan Stanley negotiated a cut of roughly 25% of the termination fee that JetBlue paid to Spirit when regulators shot down the deal earlier this year, according to people familiar with the matter.