For the second time in three months, Allen & Co. LLC is advising on a multibillion-dollar deal in the insurance space, one which could generate more than $500 million in total fees for the investment banks involved.
Allen is mostly known for working on media and technology deals, but the i-bank landed a spot on the pending $67.81 billion sale of Aetna Inc. to CVS Health Corp. announced Dec. 3. Allen is also advising Centene Corp. on a $3.75 billion deal for New York State Catholic Health Plan Inc. that was announced in September.
According to S&P Global Market Intelligence data, the i-bank has advised on just one other deal in the insurance space since 2010: Centene's 2016 acquisition of Health Net Inc. On the Centene/Health Net transaction, Allen and Evercore Inc., which also advised Centene, each received $25 million in total fees.
The two i-banks were again on the same side of a transaction in the CVS/Aetna deal. Evercore advised Aetna's board, while Allen and Lazard Ltd advised the company. Unlike Allen, Lazard and Evercore are more frequent advisers on insurance deals.
Lazard has advised on 11 insurance M&A deals with a total announced deal value of $81.41 billion, while Evercore has advised on 24 such transactions with a total announced value of $94.21 billion, according to data that includes pending and completed transactions in the U.S., Canada and Bermuda that were announced from Jan. 1, 2013, through Dec. 4, 2017.
Lazard's tally does not include the $35.03 billion terminated deal between Aetna and Humana Inc. Lazard and Citigroup Global Markets Inc. advised Aetna's side on the Humana agreement, but Citi is not listed on the CVS/Aetna deal.
Another i-bank missing from the transaction is Morgan Stanley & Co. LLC, a leader in insurance M&A advisory in recent years. Since 2013, Morgan Stanley has advised on 30 pending and completed insurance deals with a total announced value of $78.01 billion. Nearly $40 billion behind Morgan Stanley was Goldman Sachs & Co. LLC, which had ranked second on the deal value league table since 2013. But Goldman now moves into the top spot because the i-bank advised CVS on the Aetna deal.
Along with Goldman, Barclays Capital Inc. advised CVS, while Centerview Partners LLC advised the retail pharmacy's board. Goldman and Centerview do not have much of a history working on CVS deals, but Barclays has been a regular adviser to the company. Since 2010, the investment bank advised on at least three CVS transactions, including its $11.14 billion acquisition of Omnicare Inc. in 2015. Barclays has also worked as an underwriter on a number of debt transactions for CVS and is in line to do that again thanks to the Aetna deal.
Barclays, Goldman and Bank of America Merrill Lynch are providing $49 billion in financing commitments to CVS. The debt portion of the transaction would significantly increase the fees for the investment banks. Freeman Consulting Services estimated the i-banks would receive $100 million to $150 million in fees for a bridge loan, and the underwriters would receive another roughly $200 million in fees assuming $40 billion in debt is raised.
The buy-side M&A fee is expected to be $100 million to $125 million, and the sell-side M&A fee estimate is the same, according to Freeman Consulting. Typically, sell-side fees are higher than buy-side fees; in this transaction, however, the buy-side advisers could charge more than usual because it is a risky and complicated deal, Freeman Consulting Director Lam Nguyen said in an email.
The risks with the deal were apparent when, soon after the transaction was announced, Connecticut's insurance department issued a statement saying it would "thoroughly review" the proposed transaction. Aetna is domiciled in the Nutmeg State.
Challenges to deals in the insurance space are nothing new. Antitrust and competitive concerns led to federal judges blocking the Aetna/Humana deal and the nearly $50 billion deal agreement between Anthem Inc. and Cigna Corp. announced in 2015.
The termination of those deals led to the loss of $181 million in financial advisory M&A fees that were contingent on the deal closing, according to SEC filings. Companies commonly tie the bulk of M&A fees to the completion of the merger, and while Allen was not on the blocked insurance deals, it is no stranger to large contingency fees.
Allen is advising Time Warner Inc. on its roughly $85 billion sale to AT&T Inc., but the Justice Department has filed a lawsuit to block that deal. The companies need to complete the transaction for Allen to receive a $45 million M&A fee.
If challenges are made to the CVS/Aetna deal, another large fee could hang in the balance.
