AB InBev | SABMiller deal is fee bonanza for management consultants

The megadeal between AB InBev and SABMiller has triggered a fee bonanza among advisers working on what is third-biggest deal in global corporate history. Investment banks, consulting firms, law firms, PR firms and accounting firms are set to rack in a massive $1.4 billion in the coming years, a sum which, according to analyst firm Dealogic, puts the fees among the top three ever paid to external firms in a deal setting. Around $180 million will flow to the hands of management consultants.

Last month Anheuser-Busch InBev and SABMiller confirmed that they had agreed the conditions for their merger, which after closing will create the world’s most dominant brewer, worth an estimated $275 billion. The deal, which is valued at $103 billion, making it the third-largest corporate takeover ever, will also yield some of the largest fees for a single deal ever paid to external advisors, including investment bankers, management consultants, M&A lawyers, accountants and PR/communications experts.

According to the prospectus released by the two firms, AB InBev and SABMiller will spend a staggering $1.4 billion on fees to advisers to complete the megadeal. The largest share of the bill will be paid by AB InBev, which takes a $1.2 billion share of the total, while SABMiller will face advisory costs of about $200 million. Just over $180 million of the total spend will flow into the pockets of management consultants. Both brewers have released no details on the consulting firms helping them through the strategic orientation and post-merger integration work, although common in such processes is that strategy consultants are brought in to oversee the blueprinting and planning work, while project management firms are hired to lead PMO work and functional and IT specialists are engaged to support individual workstreams.

AB Inbev’s bill for management consultancy will amount to $180 million, with SABMiller set to pick up $2 million of the expenditure.

Consultants working on the deal prior to the formal announcement, were asked to pause their work late July, when the transaction faced an uncertain spell after SABMiller shareholders threatened to rebuff the bid after they had watched the value of the offer (£44 a share) fall along with pound (following the Brexit developments). “There should be no contact with AB InBev with immediate effect, and all meetings and calls will be postponed until further notice,” wrote SABMiller Chief Executive Alan Clark in a memo to employees. “This also applies to all advisers and consultants working on these transactions.” The majority of corporate finance consultants had begun working on the deal early this year, while the bulk of management consultants were onboarded in the spring, working with teams from the brewers on blueprints for the merged firm, project management roadmaps and on plans for integrating finance, technology, procurement and certain supply-chain functions.

After Belgian-based AB InBev boosted its cash offer to £45 to appease SABMiller shareholders, the shareholders agreed the terms, and integration work across both sides was resumed.

The largest fees however will go to the investment banks. AB InBev forecasts to spend $135 million on financial advice, with the majority going to Lazard, the firm’s lead adviser, while the remainder will be split among Deutsche Bank, Barclays, BNP Paribas, Bank of America and Standard Bank. The brewer will pay a further $725 million in fees to its financing banks, which helped the company raise $46 billion in debt in January – the second-biggest bond deal ever – to pay for the merger. 

Around $185 million will be racked up by law firms, with Freshfields Bruckhaus Deringer in pole position to receive the largest slice. The law firm is supporting the Stella Artois owner with major legal work, including the setup of the new entity, and dealing with competition reviews in several jurisdictions – the merger will see a number of divestments made to please competition authorities. Media and PR consultants are budgeted to bill $20 million to AB InBev, while accountants will have to settle with the smallest share of the pie: $15 million.

Alongside the $1.2 billion in external advisory fees, AB InBev will have to pay roughly $475 million in stamp duty to HM Revenue & Customs. 

The largest share of the $200 million to be incurred by SABMiller will also go to financial advisers ($113 million), led by London-based boutique Robey Warshaw, and further supported by JPMorgan Chase, Morgan Stanley, Goldman Sachs and Centerview Partners. Law firms led by Linklaters will share $76 million in payments for their work, while public relations consultants will split $9 million. Accountants and management consultants close off SABMiller’s spending table with total fees of $2 million each. 

After completion of the merger – AB InBev and SABMiller expect to close the deal on 10 October – the globe’s largest beer brewer, firmly ahead of rivals Heineken (Netherlands) and Carlsberg (Denmark), expects to, within four full years of the transaction closing, structurally save $1.4 billion on its annual operating spend. The savings will mostly come from heavy job cuts at AB InBev – the Belgian company, known for running its operations very efficiently, plans to slash 3% of the combined workforce, or 5,500 people. The majority of redundancies will be realised in overlapping staff and back-office functions, with many of those based in its headquarters in Leuven.

As part of the cost savings, South African SABMiller will close its London head office, which is in Mayfair and has 51 staff, within 12 months of the deal closing. Although not yet confirmed, it is also expected that job cuts will be pushed through at SABMiller’s main UK site in Woking, where it currently has 570 staff. 

Ahold - Delhaize merger
Another recent megadeal, between supermarket giants Ahold - Delhaize, saw over €100 million in fees distributed among external advisers. McKinsey & Company served as the lead strategy consultant and merger advisor to Ahold, while Delhaize called in the support of Bain & Company to support its strategic work.