Who actually profits from M&A — the advisers, lawyers and bankers behind every deal

When a big deal gets announced, the headlines focus on the acquirer’s share price, the offer premium, and whether shareholders will vote yes. What gets less attention is the army of advisers — bankers, lawyers, accountants, PR consultants and regulatory specialists — who get paid regardless of how the deal turns out. Their fees run to hundreds of millions of pounds on large transactions. Their incentives, as a result, do not always point in the same direction as yours.

The mathematics of advisory fees are worth understanding before you read the next takeover announcement with any sense of detachment. Investment banks advising on M&A transactions typically charge a completion fee calculated as a percentage of the deal value. On large UK public company deals, that figure usually sits somewhere between 0.5 and 1.5 per cent of the total transaction value. Run the numbers on a ten-billion-pound deal and you are looking at between fifty million and one hundred and fifty million pounds, paid only when the transaction closes.

That last part matters enormously. The fee is contingent on completion. If the deal falls apart, the advisory bank collects a much smaller retainer for the months of work it has put in. The economic incentive for every senior banker in the room is therefore to get the deal done, not to provide an impartial assessment of whether getting the deal done is actually a good idea. This is not a conspiracy. It is simply what the fee structure produces.

Both sides of a transaction need advisers. The target company hires a defence team to maximise the offer price, or in some cases to repel the bid entirely. The acquirer hires a team to structure the offer, finance it and push it through. On a complex deal involving a UK listed company and an overseas buyer, it is not unusual to have four or more investment banks at the table, each with their own interest in seeing the deal conclude. Add in the financing banks — those providing the debt that funds the acquisition — and the room fills up very quickly with people whose financial wellbeing depends on the same outcome.

The law firms sit alongside the banks, and their fees follow a similar logic. Corporate M&A partners at Magic Circle and Silver Circle firms in London are among the highest-earning lawyers in the country. A contested takeover involving regulatory complexity in multiple jurisdictions can keep teams of fifty or more lawyers occupied for months. The billing is typically by the hour, but the volume of hours is driven by deal complexity, and deal complexity is something advisers have considerable influence over. Nobody is incentivised to simplify.

Due diligence adds another layer of cost and another set of advisers with a tangential interest in the outcome. The Big Four accountancy firms provide financial due diligence on behalf of the acquirer, reviewing the target’s books to verify what the management accounts actually show. This is genuine work, and it serves a real purpose. But it is worth noting that the firm conducting due diligence is also paid on engagement, not on quality of recommendation. A due diligence report that flags serious problems and kills a deal is, in aggregate, less commercially valuable to a firm than one that identifies manageable risks and allows the transaction to proceed.

Financial public relations is a smaller cost but an instructive one. Both the acquirer and target will typically retain a financial PR firm to manage communications during the offer period. In the UK, a handful of firms — Brunswick and FGS Global among the most prominent — specialise in advising companies and their advisers through sensitive corporate events. Their job is to shape the narrative: for the acquirer, to build momentum and shareholder confidence; for the target, either to make the offer look inadequate or to help smooth a recommended deal across the line. Like the banks, they are paid for the transaction, not for its subsequent performance.

Regulatory advisers are a feature of the largest deals. A transaction that triggers review by the Competition and Markets Authority in the UK, or the European Commission for cross-border deals, will require specialist competition lawyers and economists to make the case for clearance. This advice is genuinely necessary and often genuinely independent. But it extends the timeline, adds to cost, and draws in yet another group of professionals whose workload depends on deals proceeding.

None of this is secret. Offer documents published under the UK Takeover Code are required to disclose the fees being paid to financial advisers, and the larger deals have been a matter of public record for years. What is less often discussed is what this fee structure does to the quality of advice that company boards receive at the moment they need it most.

The academic evidence on M&A value creation is well established and worth repeating: the majority of large acquisitions fail to create value for the acquiring company’s shareholders. Studies consistently find that acquirer share prices underperform in the three to five years after a major deal, while target shareholders — who capture the premium — tend to do rather better. The people who do best of all, with the greatest consistency, are the advisers. Their fees are secured at completion. The integration nightmare that follows is someone else’s problem.

There have been efforts to address the conflict. Retainer fees paid regardless of outcome, and an increase in the use of fairness opinions from independent advisers, are both designed to introduce some separation between the fee and the completion. In practice, the completion fee remains the dominant economic event for most advisory teams, and the structural incentive it creates has not gone away.

The lesson for private investors is a simple one. When a deal is announced and the advisers are wheeled out to explain why it is strategically compelling and financially attractive, it is worth asking yourself who is paying for that view. The company’s financial advisers are not independent commentators. They are paid participants with a direct financial interest in the transaction completing. That does not mean they are wrong. It means the context matters, and their enthusiasm should be weighted accordingly.

Reading a deal through the lens of who profits from it, rather than who says they will profit from it, is one of the more useful habits a private investor can develop.

This post is drawn from The Street-Smart Trader by Ian Lyall. Republished with permission.

Street Smart is a series drawn from first-hand experience of the City of London, updated as each new chapter arrives.

Disclaimer: The value of investments can go down as well as up, and you may get back less than you invest. This article is for informational and educational purposes only and does not constitute financial advice. Always do your own research and consider seeking independent advice before making any investment decision.