Linen that’s ironed its own creases

By Ian Fraser

Sunday Herald

June 3rd, 2001

INDEPENDENCE. If the opinion polls are to be believed it is a state that appeals to only about one-quarter of the Scottish electorate. But in the more rarefied world of corporate finance advice, it’s fast becoming a highly saleable commodity.

Many clients are openly fearful of being steered into the wrong sort of deal by the large investment banks for which independence is rapidly becoming an alien term.

Increasingly owned by multi-faceted financial giants such as HSBC, Deutsche Bank and Citigroup, there’s a growing suspicion that such organisations are likely to be swayed by self-interest. For example, they might push a corporate client into a particular fund-raising method simply because it enables them to feed extra business into a hungry part of their many-tentacled organisation. In the City of London, this sort of thing does happen!

British Linen Advisers, born in February 2000, could not have come on to the scene at a more auspicious time.

A series of takeovers of investment banks, including those of Donaldson Lufkin & Jenrette by CSFB and Flemings by Chase Manhattan, has left only a handful of advisory firms – including Noble Grossart, Lazard, Gleacher, Hawkpoint and Greenhill & Co – that are not part of a larger bank.

This has created an environment in which the ability to give truly objective corporate finance advice is becoming an increasingly valuable commodity. British Linen Advisers, an Edinburgh-based corporate finance house which specialises in advice on debt-financing, equity and corporate transactions, has quickly carved itself a valuable niche in the small and mid-cap sector.

“People often have a problem with taking advice from the same organisation they bank with,” said Mary Campbell, one of the group’s founding directors. “There is a fear of having all your apples in the same barrel.”

The corporate finance house, subject of a classic management buyout from Bank of Scotland in February 2000 and which already employs 25 people between offices in Edinburgh and London, handled 18 transactions with a total value of £1.2 billion in its first year of operation.

It expects to handle transactions worth about £2bn in its current financial year.

Clients to date include biotech firm PPL Therapeutics, papermaker Inveresk, furniture retailer Harveys, financial services group First Active, National Express, the University of Edinburgh, civil engineers Cleveland and the Dunfermline Building Society.

“We’ve had a very successful first full financial year, with 30 new mandates and 18 completed mandates and a total deal value of £1.2bn,” said Campbell.

BRITISH LINEN’S first deal was the buyout of Cleveland, the company that built the Forth Road Bridge. Cleveland bought itself out of the struggling Anglo-Norwegian group Kvaerner for #8.2 million. BLA has also advised the founding Macdonald family on Glenmorangie’s recent distribution deal with US-based Brown-Forman.

But Campbell said British Linen’s flagship deal was the sale of Harveys to Homestyle last July.

The listed furniture retailer, which has annual sales of £275m and 2300 employees, was sold to rival retailer Homestyle for £136m. British Linen secured a price at a 64% premium to Harveys’ share price on the day news of the talks emerged.

On the strength of such successes British Linen has been able to attract top talent. It recently hired two new directors – Andrew Shaw, formerly with J Henry Schroder Wagg and Arjo Wiggins Appleton, where he was finance director, and John Wilkes, formerly with HSBC Investment Bank. It has also hired three new associates – Nicola Fraser, Rob Paul and Michael Irvine.

Barra-born Campbell, who previously specialised in corporate finance at both Ernst & Young and Noble & Co, said: “The big investment banks cannot turn on a sixpence and are less interested in companies with market capitalisations of between £150m to £300m. But this is our core market which gives us a clear advantage.”

The fact that directors have invested their own money in British Linen helps give it an edge: they’re bound to be hungry for business.

The company always ensures that two of its directors are allocated to each deal – an unlikely scenario with one of the larger investment banks.

Chairman Norman Murray said: “Clients like our focus on impartial advice without the distractions of cross-selling other products.”

Campbell admits, however, that deal-flow has been slowing in the first half of this year, partly because of the US slowdown and corresponding fears for the mid-term economic future in the UK and Europe.

Some companies are, for example, putting off acquisitions in the belief that Sir Eddie George will ensure borrowing rates are even lower before the year end. However Campbell said a boost in advisory work was compensating for any temporary slowdown in deals. “This is lumpy business,” said Murray.

Campbell believes that “getting the people issues” right has been critical to British Linen’s success. The firm has eschewed having a chief executive in favour of a flat organisational structure, and the London and Edinburgh offices operate as a seamless whole. “We view the whole country as our marketplace,” said Campbell. “Having British in the name certainly helps.”

Next weekend the company’s entire staff, together with spouses and offspring, is going on a jaunt to London – including a spin on the London Eye.

Of the firm’s 12 directors, three are women, highly unusual for a firm specialising in corporate finance. Murray joked: “Sometimes it seems as if we have a glass ceiling for men here!”

BLA grew out of the British Linen Bank, a merchant bank which was effectively closed down by its parent Bank of Scotland in 1999.

The bank had been around since 1746 and is referred to in Robert Louis Stevenson’s novels Kidnapped and Catriona.

Many of the functions carried out by the British Linen Bank – including its PFI, asset finance, treasury services and venture capital operations – were spun off into BoS’s newly streamlined operating divisions. But for BLB’s corporate finance advisory team, the dismemberment spelt opportunity.

They felt that, with or without the British Linen name, they would have greater credibility as corporate financiers if they were to buy themselves out of their former parent. Together the founder directors invested #1m in BLA while the Bank of Scotland invested £1m for a 14.9% stake.

Bank of Scotland has, so far, been very supportive of the fledgling corporate finance business and recently invited British Linen Advisers to advise on the outsourcing of its tax and trustee services.

Copyright SMG Sunday Newspapers Ltd 2001

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