After a spot of partner swapping to rival Dallas or Dynasty, consolidation for the UK’s housebuilding industry looks assured after Taylor Woodrow announced an agreed £535m bid for Bryant. And as The Lawyer goes to press, no doubt there are corporate lawyers thrashing out the next deal between Beazer – Bryant’s jilted bride – and fellow housebuilder Persimmon. With other industry players also on the defensive, it looks like those corporate fees will just keep rolling in. A happy thought for some. But a dismissive comment from one beneficiary suggesting that there will be little knock-on effect for property lawyers servicing the sector seems both patronising and bizarre.
For firms with established residential development practices that deal with land acquisition through to unit sales – the likes of Eversheds, Wragge & Co, Davies Arnold Cooper, Laytons and Davies & Partners – there is everything to play for. So is the future really so bright for them?
For Taylor Woodrow the deal is a strategic step towards expanding its UK housebuilding activity, put in motion by Bryant’s plans to merge with Beazer. With the creation of a stronger company through the marriage, more work is sure to follow for property lawyers. Experts point to close synergies between the corporate philosophies of the companies, regular experience of working together and no duplication between the two sets of offices. These factors could be key, since they reduce the likelihood of redundancies, which have a nasty habit of scuppering even longstanding adviser relationships.
But one big difference between the two is their take on outsourcing legal work. While Taylor Woodrow has an in-house legal capability, Bryant is virtually unique in the sector in its preference for outsourcing. A key recipient has been Eversheds’ Birmingham office. Pre-merger, the practice agreed to an exclusivity arrangement with Bryant. It must have seemed like a good idea at the time. But while Taylor Woodrow is likely to keep Bryant’s infrastructure intact, it may look to increase the in-house work. Relationships with advisers may also come into question as Taylor Woodrow personnel take up top positions within the merged company. The situation leaves Eversheds looking decidedly vulnerable. After all, Taylor Woodrow’s property advisers include rivals such as Wragges.
While all of this has still to pan out, attention has now shifted to the proposed Persimmon/Beazer marriage. The move smacks of defensiveness. It will result in some overlap of offices and Persimmon has already spoken of plans to reduce volume to 13,500 units a year from an aggregate capacity to build 15,500 homes. So, potentially less development work for lawyers.
Of course, this is all still theory. But there is another possible scenario worth mentioning: as housebuilders grow through industry consolidation, they may become increasingly attractive property clients to the City firms, which have traditionally dismissed them. A key motivation for consolidation is the need to pool financial and management resources in order to tackle developments on contaminated inner-city sites. To raise the necessary equity, housebuilders need to become billion-pound companies. Mixed residential and commercial schemes are also making development work more complex.
With these factors in mind, one City property head talks seriously of getting more involved in the acquisition, planning and environmental work that such schemes entail.
Needless to say, the high-volume, low-end work would be outsourced further down the food chain. City firms have neither the slightest inclination nor the bulk to break into unit sales. The challenge, therefore, will be to convince housebuilders to break with their natural preference for a one-stop shop. Firms will have to persuade them that lower-end work can be neatly packaged out to smaller fish without them noticing the difference. They will also have to shake their preference for firms with a regional spread. Then there are the fees. One regional expert says that these obstacles stand in the way of any serious threat. Even if they wanted to muscle in, he argues that City players would not stand a chance. If he is wrong, those looking to break into the sector can be certain that the likes of Eversheds and Wragges are not about to bow out gracefully.