Q&A... Jeremy Mead on Coles/Wesfarmers

Jeremy Mead was part of a six-strong team from Lazard Carnegie Wylie working for Coles, along with Deutsche Bank. Other key members were team leader John Wylie and Michael Quinn.

Jeremy Mead answered Business Spectator's questions sent by email.

In the end, what was the most difficult aspect of this transaction?

Both the KKR syndicate and the Wesfarmers' syndicate worked very hard to remove competitive tension -- KKR by attempting to tie up many of the global banks capable of financing a deal of this size, and Wesfarmers by attempting to acquire a blocking stake. Our hardest task was to keep competitive tension in the auction despite this, while at the same time balancing the competing requirements and occasionally threats of the bidders.

How close did the credit squeeze come to causing the deal to collapse?

The credit squeeze removed one bidder and took away Wesfarmers' partners, so it had a very material effect on the auction. Fortunately we were able to negotiate a successful deal with Wesfarmers bidding alone.

Coles paid $10 million for TPG to conduct due diligence, presumably to create some bidding friction. Did you wonder at any time whether it would have been a better idea to negotiate further with KKR? And why (not)?

$10m was a small price to pay to keep TPG in the game. I assume your question refers to the 2006 approach by KKR. At no time did we regret not negotiating with KKR the first time round. Their indicative price was too low and there was no guarantee that they would have even stuck to it if we had allowed them in to undertake due diligence.

Apart from the size, what has made this transaction particularly unique?

The deal was one of the few deals in excess of $10 billion globally where the target was able to stimulate an auction in the face of the private equity cartel.

What was the most satisfying aspect of the deal?

In the light of the answers to the two questions above, we felt we had done well to keep the playing field sufficiently level to get an auction going. Then, in the face of the departure of the other bidders as a result of the credit crisis, we were very pleased that we were able to negotiate a successful deal with Wesfarmers.

Will this be your biggest pay cheque from an M&A transaction? How much will you receive? Will you get a success fee?

I'm afraid we do not comment on fees.

What's the pipeline of deals looking like?

Our pipeline is good, but probably slightly down on last year. This probably as much as anything reflects how busy we have been executing deals over the last year.

What sort of impact will tight credit markets have?

Tightened credit markets have presented corporates with opportunities. They now feel more confident in being able to acquire without being overbid. That said, there continues to be debt available for sensibly structured leveraged deals up to $2.5-3 billion in the Australian market. In reality, so long as banks continue to hold their nerve, all we will see is lending an pricing returning to the levels we saw 18 months ago and the last year will stand out as an anomaly.