Stepping out for big ticket deals
19 December 1995
In the South West, relationships between firms and merchant banks and other London institutions are becoming stronger rather than weaker.
The strengthening of relationships has required much effort on the part of regional firms to overcome City prejudices, but work remains to be done. For example, although it is now common for big ticket capital venture work to be dealt with in the regions, there still seems to be a preference for City advice on 'pure' merchant banking and some Stock Exchange related work.
This firm's experience in relation to the institutions is illustrative of the trend, and also of the size of the task before big regional firms.
We are based in the South West and Wales. Five years ago, we did not represent any institutions but we had conducted several management buy-outs, so had direct experience of venture capital agreements.
At about that time, NatWest Ventures opened in Bristol. The company operated a policy of using local advisers to support their own marketplace.
We won our first institutional deal when Graeme Robinson of Ernst & Young instructed us in a deal in 1991.
Robinson is now head of corporate finance for Ernst & Young in London and was a heavyweight presence with London institutions.
At the time, Charterhouse was seeking out deals in the regions and backing it up with a very strong presence in Bristol. This included instructing local advisers on local deals.
Robinson mentioned the firm's name to Charterhouse and as a result we acted for the company and its syndicate partners in its investment in Mulberry. This was a great help in raising our profile.
In the present legal market place strong firms are becoming stronger at the expense of those who are not.
The strong firms are the ones which will succeed and, to quote a competitor, "surf on the waves that break over everyone else's head".
The major regional firms, which have the clients and potential clients in their own backyard, are capable of putting pressure on London firms.
Deals that would have been made exclusively in London 10 to 15 years ago are now commonplace in the regions.
Accountants have had a large part to play in all this. The regional corporate finance practices of accountancy firms are becoming more active and important in corporate finance. In particular, they have an active role in identifying and generating deals then taking them to venture capitalists.
An accountant in Birmingham can help his own practice by suggesting to an interested venture capitalist that if he wins a deal he ought to employ the services of a local lawyer. There are plenty of high quality lawyers in Birmingham and the venture capitalist is likely to take the advice of the accountant. Quite often he will also negotiate a fixed price for the deal which compares very favourably with the rates charged in London.
Given the power of the accountants, an increasing number of deals are going to be made on a regional basis.
However, to complete them it is necessary to have the resources and skills the institutions require. These can only be provided if there is the necessary deal flow. One is dependent upon the other, which makes the market difficult to break into. This is the main reason why pure merchant bank work tends to remain in London. Only the strongest regional firms have the resources and deal flow to satisfy requirements on that type of transaction.
Some 50 per cent of all companies quoted on the London Stock Exchange have a market capital of less than £50 million. At that level, given the increasing capabilities of some regional firms, there is every reason for such companies to look beyond the City for this work. When these companies deal in the future their institutions will meet regional advisers and greater mutual exposure will cement relationships between the institutions and regional firms.