BOUTIQUE investment bank Gresham Partners has always been a quiet little earner for WA’s biggest industrial company Wesfarmers, contributing a healthy $2.5 million on average to the bottom line during each of the past couple of years.
BOUTIQUE investment bank Gresham Partners has always been a quiet little earner for WA’s biggest industrial company Wesfarmers, contributing a healthy $2.5 million on average to the bottom line during each of the past couple of years.
But the Wesfarmers leadership must be hoping the BHP-Billiton merger gets approval this financial year, because Gresham’s role in the biggest mining merger in history will see a substantial jump in earnings from its 50 per cent stake.
Just how much Gresham, and therefore Wesfarmers, will receive is a closely guarded secret but speculation abounds that Billiton’s advisers will get at least as much as BHP’s UBS Warburg which is reputedly set to earn $40 million.
Gresham is understood to have played an equal role in the Billiton side of the deal with a UK-based team from JP Morgan.
Even taking into account the success fees which go to individual Gresham executives who have played their part in the deal, it is easy to see Wesfarmers more than doubling its profits from Gresham, largely from the proceeds of this one deal.
More importantly, the increasing stature of Gresham positions it for involvement in more of these mega mergers in the future.
While declining to comment on the sums involved, Gresham director Michael Ashforth agreed that the success of the deal, which ultimately rests with BHP and Billiton shareholders, vindicates the strategy behind Gresham’s creation.
“Gresham, as a consequence of its involvement in this, has lifted its general recognition in regard to what we are about,” Mr Ashforth said.
Speaking from Rottnest’s Geordie Bay, the lawyer-turned-banker sounded particularly delighted at the ability of Gresham executives to play at the top echelons of business while remaining strongly linked to Perth.
“You make compromises living in Perth but there are still benefits and opportunities,” he said.
“For us to live and work in Perth but get involved in this transaction, I reckon we are immensely lucky.”
Investment bankers claim success in this business is all about building relationships, something a boutique firm can do as well as a big one.
Gresham’s seat by the side of Billiton at negotiations with BHP came after working with the South African miner in two much smaller deals, the takeovers of nickel producer QNI and buyout of the Ravensthorpe nickel project from Comet Resources.
Gaining a place at the table is one thing, making it the success needed to earn fees is another.
Bankers claim only one in 20 deals earn them a success fee, with significant time burned exploring new possibilities or getting negotiations under way, only to have them fall through.
“We started working on this about three years ago,” one Gresham insider told Business News.
A thing that has changed during that time is the use of break fees in Australia due to recent Corporations Law reforms.
The BHP-Billiton deal is the biggest example of the new development, with both sides agreeing to pay the other $US100 million if their actions caused the deal the to fall through.
The break fee is not new in other parts of the world and has been used less publically and less obviously in corporate Australia before.
But the inclusion of the fee in the merger announcement heralded a change for those in the business of big mergers and acquisitions.
Takeovers Panel president, Simon McKeon, said regulators would have to deal with the issue which had already become part of the vernacular of merger talks.
“In just about every deal done these days the subject is raised, in almost every case it is simply on the checklist of items to be discussed,” Mr McKeon said.
