Lawyers and beer. It’s a deadly combination, but not for the reasons one might expect. As the brewing sector has continued to shrink over the last 10 years, there has been a legal free-for-all. It was kick-started by the introduction of “tied estates” regulation over a decade ago, which limits the number of pubs that brewing companies can sell their own brands to. The big brewers were not happy about this and began getting out of the business, like Whitbread and Bass, specialising in building up their public house portfolio, like Enterprise Inns and Nomura, or buying in as many brands as humanly possible, like Scottish & Newcastle and Carlsberg.
And which are the firms to have gained from all this consolidation? Why, the magic circle of course. Well, all of them apart from Clifford Chance, which despite advising Whitbread on its failed attempt to capture Allied Domecq’s retail arm, has not really pooled that many clients in the brewing sector. Even then Clifford Chance let Whitbread slip through the net when the company decided to take corporate advice from Allen & Overy (A&O) on its next major deal, the sale of Swallow Group hotels.
No, the main contenders in this little community are Linklaters & Alliance, Slaughter and May, A&O and Freshfields. Hovering just outside that merry throng is Simmons & Simmons through its client Interbrew. And that’s your lot.
Yet there are significant differences between those firms. Linklaters, for example, has always been known in the City as holding a very impressive portfolio, including Allied Domecq and Scottish & Newcastle. The firm did some adroit manoeuvring on the sale of Allied’s retail arm to Punch Taverns last year. But although it is still recognised as a major player, Linklaters has certainly been a victim of the consolidation within the sector, which has chipped away at its staple of brewing companies. It lost Marston, for example, after its takeover by Wolverhampton & Dudley.
Yet Linklaters is apparently unconcerned by this turn of events. One Linklaters lawyer advances this argument: “Consolidation reduces conflicts.” It is certainly a rose-tinted way of looking at a diminishing area.
It is all very well for giants like Linklaters to lose bits of their client base, but the swallowing up or closure of smaller breweries has a knock-on effect locally. If the change in this sector is an emotional wrench to the brewers, then it is also a considerable wrench for those smaller regional law firms edged out of the picture. (These pressures do not necessarily apply to the licensing specialists, for obvious reasons. For example, Wolverhampton & Dudley – itself a potential subject for a buy-out – is advised by Freshfields, but Bristol-based Cartwrights has managed to retain a strong relationship with the brewer because of its licensing practice.)
However, things may have begun to turn. The regulator is watching this sector like a hawk so that none of these behemoths swallow up too much of the brewing market. Simmons & Simmons’ client Interbrew is currently under scrutiny from the Competition Commission, which is assessing just how much of a share of the market it will have after purchasing Bass and Whitbread’s brewing businesses earlier this year. And for goodness’ sake, just how many pubs can Freshfields’ client Nomura possibly want?
It has, though, been encouraging to see firms such as Eversheds and CMS Cameron McKenna moving into the fray, acting for increasingly active companies such as Enterprise Inns and Century Inns. Both firms were recently on the opposite side on the table on Enterprise’s purchase of Century.
Most lawyers involved in the sector predict that consolidation will have to slow down at some point. And if that means magic circle giants lose a little bit and the smaller firms gain, then all well and good. And that bit about consolidation being good for reducing conflicts? Give us a break.