M&A bankers rue $500m in missed fees

It is not a good time to be a mergers and acquisitions banker as they contend with eurozone volatility, reduced corporate confidence and depressed levels of activity. With the collapse of the BAE Systems-EADS tie-up this week, they now face another loss of mega-fees.

The two defence firms confirmed on Wednesday they were terminating talks over the proposed merger following weeks of speculation and tense negotiations with government stakeholders over the terms of a deal.

The 11 banks advising on the deal, which include Goldman Sachs, Evercore, Gleacher Shacklock, Lazard and Perella Weinberg, stand to forfeit $120m to $150m in fees, according to Thomson Reuters and Freeman Consulting. They will now share an estimated $15m pool.

But the collapse in talks is just the latest in a long line of withdrawn deals that M&A specialists have had to endure – often as a result of government, regulatory or shareholder pressure.

According to estimates from Thomson Reuters and Freeman Consulting, the total forfeited fees across the five biggest deals to have cancelled since the beginning 2011 now amounts to more than $500m.

The calculation is based on the premise that, in general, advisory banks are paid 10% of total fees when they sign an engagement letter, and therefore forgo roughly 90% when a deal collapses.

Collapsed deals include the proposed acquisition by AT&T of T-Mobile USA from Deutsche Telekom for an estimated $39bn, News Corporation's failed effort to acquire the remaining interest in BSkyB, and the proposed acquisition of NYSE Euronext by an investor group made up of Nasdaq OMX and IntercontinentalExchange.

One of the largest deals currently pending completion, the proposed tie-up between Xstrata and Glencore, had also looked destined for failure until Glencore’s last minute alteration of its terms.

Similarly, Beijing-controlled Cnooc's $15.1bn bid for Canadian energy company Nexen is now the subject of speculation, after Canada's main opposition party called on the Conservative government to reject the takeover.

A collapse in M&A activity goes some way to explaining the decline in investment banking revenues this year. Global M&A hit $1.8 trillion in the first nine months of the year, which was down 15% on the same period a year previous, according to Dealogic.

Financial News reported on Monday that just one in four companies expect to pursue an acquisition over the next 12 months, according to the biannual Ernst & Young Capital Confidence Barometer, the lowest level since the survey began in 2009.