Can Addleshaws hang on to its dominance in building societies?

Its clients are being taken over, but the firm remains a big hitter in the sector.

Can Addleshaws hang on to its dominance in building societies?Should Addleshaw Goddard be worried? The firm is one of the undoubted specialists in the ­building society sector, which has been a rare source of M&A work for lawyers over the past year. Addleshaws has acted on every one of the last 15 building society mergers since 1999. Alarmingly, however, in 13 of those 15 mergers, it advised the target, or transferor.

Four of the mergers were last year, with Addleshaws acting for the transferors in all cases. The firm acted for Scarborough on its merger with Skipton; for Catholic on its merger with Chelsea; for Barnsley on its merger with ­Yorkshire; and for Cheshire on its merger with Nationwide.

Addleshaws partner Adam ­Bennett doesn’t see this as a ­problem. Far from it: Bennett has made building societies his life’s work and has become one of the acknowledged gurus of the ­sector. Indeed, he made it into The Lawyer Hot 100 this year on the back of his work in 2008. As he points out, Addleshaws acts for 33 out of the UK’s 55 building ­societies. (That statistic, it
would appear, is programmed into every Addleshaws partner with an ­interest in the sector.)

If anything, Bennett says, ­Addleshaws prefers to act for the transferor of assets, rather like Slaughter and May’s policy of ­advising the target. He comments: “I’d feel pretty bad if we said we’re leaving you on your own on the biggest transactions you’re ever going to do when we’ve worked with you for years.”

So far, so gentlemanly. But there’s also a hard-headed ­business rationale.

“There’s usually more work for the transferor,” Bennett admits. “There’s more hand-­holding on directors’ duties, legal and regulatory compliance and so on. Part of it is to make the ­transaction happen properly and not let it fall off the rails.”

A couple of recent deals bear this out. When Leeds acquired Mercantile in 2006 it handled the work in-house, while Mercantile used Addleshaws. Similarly, when Newcastle acquired Universal in the same year, Newcastle’s
in-house team took on the work while Universal chose Addleshaws as its external counsel.

As transferor, a building society needs to have a members’ vote, which requires considerable work on the lawyers’ part in getting the merger document together. Although the Building Societies Act 1986 has a clause within it that allows mergers to go through on a board resolution rather than a members’ vote, up until last year this had only happened once – when Gainsborough transferred its assets to Yorkshire in 2001.

However, last year all the ­building society mergers happened through board resolution, with the exception of Catholic and Chelsea, which was passed with members’ approval.

This development has been ­controversial in some quarters, but Bennett defends the Financial Services Authority (FSA), saying: “The FSA was concerned that, because of the credit crunch, some societies might face some financial difficulties unless deals were done quickly, so it was an innovative move.” The upshot, though, is that the amount of legal work is now similar on both sides of the deal.

However, there is no doubt that Addleshaws has unrivalled ­connections with the market. It was Bennett who was given the chance as an assistant to go off and develop work. The Building Societies Act 1986 had just come into force, and Leeds-based Booth & Co (which later became Addleshaw Goddard after its own series of mergers) had just one client in the sector, Leeds Permanent.

Shortly afterwards the firm acquired ­Skipton and Portman as clients, and then in 1989 when the Building Societies Association set up its first panel, Booth & Co won a place, along with Dibb Lupton (now DLA Piper), Eversheds and Shoosmiths. That history still counts for something.

The gap in addleshaws’ CV

What Addleshaws has not done is the big demutualisations, which went wholesale to the magic circle and Herbert Smith. And of the magic circle, the most prominent over the past year has been Allen & Overy (A&O).

Last year A&O partner Richard Slynn acted for Nationwide on its merger with Cheshire and ­Derbyshire, for Yorkshire on the merger with Barnsley and for ­Skipton on the merger with ­Scarborough. Inevitably, A&O is also called in regularly on treasury work: it has acted on a number of covered bonds, of which there have been several in the past year as ­societies take the opportunity of tapping in to the Bank of England’s special liquidity scheme.

Slynn is understood to be advising Britannia on its forthcoming merger with Co-operative Financial Services, the first merger since the Butterfill Act, which will allow building societies to combine with mutuals.