David and Goliath pairings act in Nomura's takeover of Bass
26 February 2001
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Hull-based Gosschalks acted alongside Clifford Chance on Nomura's audacious £625m acquisition of a cluster of Bass pubs.
Nomura's principal finance group has purchased 988 Bass pubs after a hard-fought battle with Legal & General Ventures, making it the UK's largest landlord. The number of properties involved is dwarfed by Nomura's portfolio, now standing at 5,581 pubs, but is enough to push it ahead of closest rival Punch Taverns, which owns some 5,000. Ironically, Punch teamed up with Bass in 1999 to win control against Whitbread of 3,500 pubs put on the market by Allied Domecq.
David Pearson, corporate partner at Clifford Chance, who heads the firm's relationship with Nomura's principal finance group (PFG), led the team on the Bass acquisition, assisted by Simon Cooke, while corporate partner Neil Harvey also became involved in the final stages of the deal. Property contracts were dealt with by senior real estate assistant Alison Clegg.
Clifford Chance, one of the panel firms for the PFG, was principal adviser on the acquisition. The panel was formally constructed after a beauty parade six months ago and also includes Allen & Overy (A&O) CMS Cameron McKenna, Freshfields Bruckhaus Deringer and Linklaters & Alliance. To date, though, Clifford Chance has consistently been instructed to act on the group's pub deals, beginning in 1997 with the acquisition of a chain of 2,614 tenanted houses from the Inntrepreneur Pub Co.
However, on this deal separate instructions for property due diligence were made to Gosschalks, which worked on the 900 or so English and Welsh pubs, while Tods Murray, which was recommended by Clifford Chance, dealt with the remaining Scottish properties. Like much of the PFG's corporate activity, the acquisition involved obvious property elements, not least the checking of 988 certificates of title.
Gosschalks already had an existing relationship with Nomura. In 1997 the Hull firm advised Inntrepreneur, which was eventually bought by Nomura. Gosschalks had already carved out a niche for itself in the licensing sector and has been retained separately by Nomura on each of its pub transactions since then. Gosschalks' head of commercial property and managing partner Richard Llewellyn led the eight-strong due diligence team with partner Tony Clarke. Licensing partner Clare Johnson also worked on due diligence for the deal.
The deal reveals that relationships with specialist property advisers such as Gosschalks are part of a growing trend among clients to share the load between large and smaller firms, since Bass also took a similar approach to the deal.
While the company appointed A&O, led by Bass relationship partner Susan Howard, to advise on all aspects with the exception of property, separate instructions were made for property negotiations and property due diligence to Eversheds' Birmingham office for England and Wales, and to Wright Johnston & MacKenzie for Scotland. Both firms have a longstanding relationship with Bass and with it a historic knowledge of the portfolio.
At Eversheds, the relationship was cemented in the mid-1990s when it took on the property side of Bass' in-house legal team. Property partner Parmjit Singh led the team which was advising on property negotiations, while Brian Shaw led the due diligence team.
This was the first time Eversheds had been brought into a Bass deal in this capacity. Singh spent most of the 12 days in the run-up to the deal at A&O, from where he says it was easier to feed property information into the corporate sessions. Singh says: "We wanted to make sure that Bass, A&O and the bidders at no point felt that Eversheds was different."
There are exceptions to this approach. For example, on the PFG's £255m surprise acquisition in January of Principal Hotels, the 17-strong chain based in Harrogate, all of the property work was carried out by Clifford Chance. "It's worth paying a City firm to do property due diligence for a hotel," explains Pearson.
However, decisions to split work on a single transaction between the big and smaller hitters are becoming increasingly common. Cutting costs is an obvious and important factor; interwoven with that is the advantage of exploiting a firm's historic knowledge of a particular portfolio - a valuable commodity in a market where properties change hands in merry-go-round fashion.
Freshfields head of real estate Chris Morris says: "There was a stage where we would have jealously guarded due diligence work. When everyone was less busy in the marketplace it was useful work for us to have to bring our juniors through. But the right answer for the client can be to use a combination of firms, which has increasingly become the case over the last three years.
"Using a smaller firm is often suggested by lawyers as a response to demands of speed for the transaction and not having the manpower to do volume work."
The all-important recruitment issue also comes into play. Morris says: "It isn't particularly sexy work. There are only so many times you can ask your associates to draw up bulk certificates of title. It makes sense to bring in a firm from outside.
"Now that clients are aware of this way of dealing with things, it's difficult to see how the clock could be turned back."