Four million bucks for three days of Excel and PowerPoint? Good work if you can get it.
Amid the latest salvo in the ongoing war between the billionaire entrepreneur/thought leader Brad Jacobs and the multibillion-dollar building products supplier Beacon Roofing Supply, FT Alphaville found an interesting investment banking assignment.
Lazard, the boutique advisory firm, was officially hired by Beacon on February 2 to run some extremely mechanical M&A financial analyses — such as comparable company multiples, precedent transaction multiples, a DCF model, possibly LBO model, premiums paid list, and present value of future stock price. Basically, everything that goes on the mythic “(American) football field” of bar charts.
Assuming the Lazard junior analysts were working for 72 hours straight (quite possibly true) for a Beacon board meeting that happened on February 5, per a Beacon SEC filing, that’s a cool $55,555/hr for the firm. Nice.
Here’s the back-story: Brad Jacobs very cleverly created the cash shell company QXO (partially backed by Jared Kushner) as an acquisitions platform. Beacon has become its first object of its affection, but Beacon is understandably playing hard to get — knowing Jacobs’ desperation for a maiden deal.
So far, the sides have not been able to negotiate a confidentiality agreement that would facilitate due diligence, including the sharing of private internal financial projections.
Jacobs is frustrated enough to have launched an $11bn tender offer on January 27 asking Bacon shareholders to ignore the board and just sell their shares to him directly. Beacon responded with a poison pill that in effect prevents QXO from accumulating more than 15 per cent of Beacon.
Eventually expect enough pressure for Beacon to come to the table, either from a higher QXO bid or from shareholders keen on a deal regardless.
But in the meantime, Beacon had to file a formal recommendation on the first tender offer to persuade their shareholders not to sell their shares. To do so, the Beacon board decided to wave around some banker books which they called an “inadequacy opinion”, or really the opposite of a fairness opinion — an unfairness opinion, if you will.
After all, US corporate law mandates that directors have to show care to shareholder interests. So instead of simply telling Jacobs to get lost, they have to conjure up expert reports from reputable firms as cover, in case they get sued for trying to save their jobs by blocking a buyout.
Beyond Lazard’s windfall for a few days of grunt work, a few other things stood out to us in the Beacon SEC filing (known as a 14D-9) that asked shareholders to hold on to their shares.
First the stagecraft. Lazard shared its analysis, given orally, on February 5, without JPMorgan — Beacon’s primary banker — in the room. JPMorgan came in right afterwards and provided its own separate opinion, which, shockingly, also came to the same conclusion that the QXO bid was too low.
Second, unlike the proxy statement fairness opinions that come after a deal is announced, Lazard and JPMorgan did NOT publish the good stuff: their actual financial analysis listing their comparison set for Beacon, precedent deals, WACCs and exit multiples to scrutinise.
That’s understandable, since Beacon doesn’t want to give away what the clearing takeover price may be. For now, we just have to take Lazard and JPMorgan’s (signed) word for it that Jacobs is coming in too low.
And finally, there’s the fee structure. JPMorgan got $4mn for their opinion. But its real prize is going to be the $50mn or more success fee coming if Beacon does get acquired by QXO or some other bidder (and the success fee is reduced by the $4mn just paid to JPMorgan).
As for Lazard, it is financially indifferent if Beacon is ever sold (which is why the lawyers brought them in). Unlike JPMorgan, Lazard’s bankers don’t get any success fee if Beacon is sold, or resists a sale.
Instead, Lazard just wants persistence from Jacobs. From Beacon’s SEC filing on Thursday, with Alphaville’s emphasis below:
The Company has retained Lazard as its financial advisor in connection with the Company’s analysis and consideration of, and response to, the Offer. The Company has agreed to pay Lazard (a) a fee of $4,000,000 for such services, which is payable upon the delivery of an opinion as to the adequacy or fairness, from a financial point of view, of the consideration to be paid to the Company or its common stockholders pursuant to a merger or sale of assets or equity securities or other interests (an “Opinion”) and (b) a fee of $1,500,000 payable upon the delivery of each additional Opinion, provided that the total fees of subclauses (a) and (b) shall not exceed $7,000,000.
Two more opinions is another $3mn to Lazard so the optimal outcome for the investment bank is to formally reject a second QXO offer as inadequate and then either sell the company on the third bid with a fairness opinion attached, or have Jacobs walk away in round 3 after an UNfairness opinion.
Selling the company on the second opinion or Jacobs walking away after the first two bids forecloses on the possibility of the third fee; and a fourth opinion and onwards comes for free.
Maybe most importantly for the weary junior bankers who do the actual grunt work, all the underlying work for future Lazard opinions is essentially carried over from the first opinion– the Beacon projections are not changing nor is the comp set.
In other words, all they’ve gotta do is hit update on the FactSet or Capital IQ codes, press F9 in Excel and move up an inch or two the dotted line that represents the latest QXO bid upward on the football field.
Further reading:
— Schedule 14D-9, Beacon Roofing Supply, dated February 6th, 2025 (SEC)
