Editors' Blog

Alliance Boots is a breakthrough for private equity (and CC)

Posted 25/04/2007 by Deal Comment

The symbolism of the first-ever buy-out of a FTSE 100 company is not lost on private equity lawyers. They have been talking about such an event occurring for at least a couple of years now.

And many say that KKR’s £11bn takeover of Alliance Boots confirms their long-held belief that such large take-privates can be translated from the US to Europe (see story).

But ask if it will be the first of many and they are quick to point out that the reaction of the unions – a factor that will dictate the success of the deal – will be key. If the unions kick up a fuss, making it difficult for the sponsor to restructure the business, it will have a major deterrent effect on other bids for household names.

This is especially important given the amount of scrutiny the private equity industry is currently attracting. Growing concern over private ownership, transparency and the treatment of tax in the sector will mean buy-out houses will have to play their cards carefully over the coming months.

Current indications are that the industry is showing just enough sensitivity to its current position to grease its way out of serious trouble, which arguably demonstrates that a cottage industry notorious for its poor communications skills is maturing.

It is no coincidence that KKR has attempted to appease the unions today (25 April) by announcing that it is not intending to cut jobs at Boots as a result of the deal.

But whether or not KKR wins the hearts and minds of the general public (it's hard to imagine that sentence being said not so long ago), it would take an almighty effort by the unions to stop private equity houses from advancing on other FTSE 100 companies. The amount of private equity fund-raising has risen dramatically over the last two years and the growing number of consortium deals means very few companies are really out of bounds.

Not even Slaughter and May – Boots' adviser – can ignore it. The firm might boast an unparalleled roster of FTSE 100 clients, but its list of top buy-out clients remains well short of its comparable rivals. And these are private equity outfits that are looking to buy-up half of Slaughters' client list.

Slaughters has two advantages here. Firstly, it has often done well when its clients are taken over. Boots itself was acquired by Alliance – an Allen & Overy client – last year, yet Slaughters still won the key mandate. Likewise, its banking connections remain excellent, which will help the firm get the nod with big clients.

So this could in theory prove a Trojan horse situation for Slaughters, though it seems odd that the firm makes less effort than several years back to emphasis the private equity credentials of its younger partners.

Likewise, there are mixed blessings for the adviser to Terra Firma, Weil Gotshal & Manges, though the mandate was arguably a result for the firm as a profile-raiser given that Guy Hands' outfit never looked a serious competitor to the KKR/Pessina joint ticket.

A firm that will be unambiguously celebrating is Clifford Chance (CC), counsel to KKR, a highly coveted and active client in Europe in recent years but one that has spread its work too thinly to give any one firm the chance to get a grip.

With CC also leading on this year’s other undisputed headline-grabbing bid – acting for Barclays on its increasingly confident takeover approach for ABN Amro – the firm is reaching a breakthrough point.

paul.hodkinson@legalweek.com