Close Brothers banks on Freshfields for rights issue

Freshfields' work on the £53.4 million rights issue of UK merchant bank Close Brothers demonstrates the advantage of retaining acorn clients. They grow into oaks, as the bank's value today testifies.

Close, which started in 1979 as a £1 million management buy-out by three directors, now has a market capitalisation of around £360 million following the rights issue.

Freshfields has nurtured Close since the earliest days, said Peter Winkworth, one of the three original MBO executive directors. “I happen to believe that continuity is a good thing – they know your business inside out, and you know theirs. The lawyer has to have information at his fingertips,” he explained.

With service businesses like banking, the benefits to legal advisers can extend to referrals. According to Winkworth, a number of the bank's clients have been referred to Freshfields over the years.

Freshfields corporate finance partner James Davis led on advising the bank. Ashurst Morris Crisp partner Adrian Knight acted for the underwriters to the issue, SBC Warburg.

Close Brothers has other close ties with lawyers. The third member of the MBO team, along with Winkworth and Close Brothers managing director Rod Kent, is director Peter Stone, a lawyer who trained at Slaughter and May.

Stone's career has been a little more colourful than the average City lawyer or banker. After qualifying, he became a professional hot air balloonist in the early 1970s.

Another major legal figure with Close Brothers is Alastair Farley, senior partner at Watson Farley & Williams, who sits on the board as one of its four non-executive directors. His firm has enjoyed major growth almost from scratch over the past 15 years.

Although the firm tends to disapprove of non-exec jobs for partners, it made an exception for Close because of its reputation, said Farley.

“It's an exceptional company. There are not many independent, quoted UK merchant banks left,” he added.

Pat Gaynor, McKenna & Co's former senior partner, also used to be a Close non-exec. Winkworth said McKennas figured high among the firms which Close has used on deals.

Close Brothers was bought out from Consolidated Goldfields in June 1979 by the three directors, advised by Freshfields. It went public in August 1984 by reversing in to Safeguard Industrial Investments, one of the original backers of the MBO.