Most of the world's largest corporate mergers and acquisitions (M&A) transactions depend upon bank finance to take place. Without the large loans that investment banks and other financial services institutions provide, corporate organisations wouldn't be able to fund these purchases, which are often crucial to the growth and development of their businesses. And the successful provision of this funding depends on finance lawyers.
Global law firm Clifford Chance has one of the City's premier finance practices. The firm's London office is top-ranked by leading legal directory Chambers and Partners for its work with lenders on M&A transactions and regularly acts on the City's largest deals of this kind, including one of the biggest acquisition financings of recent years - the $12.5 billion (£7.8 billion) funding of multinational beverage group SABMiller's acquisition of Australian brewer Foster's.
How it happened
SABMiller is one of the world's largest drinks companies with a portfolio of top global brands including Peroni Nastro Azzurro and Grolsch. It has operations across the globe but, until 2011, lacked a significant presence in Australia. The Australian drinks market is an attractive one, being well-developed, stable, extremely profitable for its largest players, and part of a wider economy that's managing to sidestep the economic problems much of the world is facing, largely thanks to the strength of the Australian natural resources sector. Foster's, which controls almost half of the Australian beer market, was therefore an ideal addition to SABMiller's operations. A tie-up made sense for Foster's too, giving it access to SABMiller's global capabilities and expertise, and to its customers across the world.
SABMiller and Foster's eventually reached a formal deal in September 2011. SABMiller agreed to pay Foster's shareholders A$5.10 (£3.30) a share, representing a A$11.5 billion valuation of the Australian brewing group's business. Clifford Chance lawyers in London, with assistance from the firm's New York and Sydney offices, advised the group of banks and other financial institutions who lent the billions of pounds that enabled SABMiller to go ahead with the deal, which included Barclays, Citi, J.P. Morgan, Morgan Stanley and RBS as lead arrangers.
"We had a huge part to play in making sure the lenders got comfortable," says partner Geeta Khehar, who led the Clifford Chance team working on the deal. Finance lawyers advise their clients on the legal dimensions and commercial aspects of deals such as this one. They negotiate and draft the complex loan documentation involved, and manage the process of taking a business agreement to lend very large sums of money to a legal and commercial reality.
This deal, says Geeta, "was a large and complicated financing". Not only did the sums involved make the deal among the largest in the loan market, but the company was trying to borrow the very significant sum they required at a time when raising any money at all from banks was tricky. "It was post-Lehman's, and lenders were very cautious about where they lent and how much they lent," says Geeta.
The deal was also complicated by a number of business issues. Although they're not parties to the actual acquisition agreement, banks involved in a deal such as this one - and their legal advisers - get very involved in the mechanics of the acquisition because they want the transaction to work from a commercial perspective to ensure the loans they make to a buyer can be repaid - and the deal can't go ahead without their backing. One of the most significant of these issues was the need for the approval of the Australian government for an acquisition of Foster's, required because of its significance to the Australian economy. The government eventually agreed to the deal subject to some conditions, including a promise from SABMiller that Foster's operations and management would remain in Australia. In addition, "[Foster's] was a very coveted asset," says Geeta - "so there was a lot of competition for it."
Closing the deal
The fact that SABMiller had to battle several other potential bidders in the beverages industry - who included North American Molson Coors and multinational conglomerate Anheuser-Busch InBev - meant a high-octane working environment for the Clifford Chance lawyers on the deal. "This wasn't a bid where [SABMiller] expressed their interest and the target said, 'Yes, that's a great idea' and it all happened," says Geeta. "This [deal] ended up being - initially - a hostile takeover. There was a lot of timing pressure because it was a very fast-moving transaction."
The complexity of the bidding process, together with the fact that Foster's was a publicly-listed company, meant that the Clifford Chance team was exposed to some very commercially sensitive and newsworthy information, so had to keep their work very quiet indeed: "There was so much speculation," says Geeta, "but because of the nature of the financing we weren't able to talk about it. We couldn't even tell our colleagues that we were working on it because it was so highly confidential."
The media interest in their deal, which is not an unusual experience for Clifford Chance lawyers given the high-profile nature of much of what they do, added to the sense of achievement being involved in it gave Geeta and her team. "It's exciting to see a deal you've worked on in the press," she says. "You follow the speculation and the rumours and it's fascinating because you're in a position of knowledge - it adds to the fun of doing it." It's clear, though, that the hype surrounding a potential deal only means anything to them if they bring that deal to fruition: "The success of a public bid financing is ultimately measured by whether you get there on time and whether the client and the party on the other side are happy," says Geeta. "In that sense, it was a hugely successful transaction."