These are unsettling times for the brewery industry. The official beer market – currently producing sales worth about £8bn each year – is shrinking at the rate of approximately 3% per annum, partly due to illegal imports and partly due to changing drinking habits. Most breweries have recorded a decline in pub sales over the Christmas period, with a consequent fall in share values.
However, although the brewery industry may be in decline, its demand for legal services shows no sign of a slump. Legal work now spans from traditional licensing agreements to complex and innovative financial transactions, and breweries have had to adapt their use of legal services to cater for this.
Regional family breweries are finding themselves head-to-head with large national – and in some cases international – companies in a declining industry. The upshot of this has been a wave of consolidation in the last few years with a succession of small breweries being taken over by industry giants.
The big four national brewers – Scottish & Newcastle (S&N), Bass, Whitbread and Carlsberg Tetley now control 84% of the beer market. And it is forecast that this dominance will continue and more breweries will close in the next 12 months.
Andrew Vellani, group legal director at S&N, says: "The process of consolidation and change is not going to abate. Further consolidation is inevitable."
Vellani blames this primarily on the 'beer orders' legalisation introduced in the late 1980s. This limits the number of pubs that a brewery can own. It was designed to attack the perceived non-competitive nature of the industry.
But it actually had the effect of forcing the larger brewers to divest of pubs, leading to the expansion of 'pub groups', such as JD Wetherspoon and the Old English Pub Company.
The smaller brewers have had to take steps to protect their position within the dwindling market. And many of the larger breweries are diversifying into other areas of business, such as hotels, leisure centres and sports complexes.
These developments have inevitably had an impact on the role of the in-house lawyer within the industry. They have found themselves grappling with increasingly complex transactions. The most striking example of this is the innovative use of securitisation techniques – a means of raising capital by securitising the future profits of tenanted pubs.
Nomura, the biggest pub group, has been at the forefront of these securitisations. It used this method for the first time to finance a purchase of 1,800 pubs from Grand Metropolitan and Fosters in 1995.
The board of Marston Thompson & Evershed, brewer of Marstons Pedigree, recently proposed to sell its tenanted pubs through a securitisation deal backed by Nomura. Linklaters, Marstons' regular adviser, was acting on the deal. The advisers' fee alone is currently estimated to stand at £6m.
However, Wolverhampton & Dudley's hostile takeover has put paid to the plan – for the time being at least. Marstons' company secretary Graham Ford and the Linklaters team are now working frantically to help the company fight off the takeover threat by resorting to the 'Pacman' defence.
It is the first time the notorious Pacman defence has been used in the UK, and the advisers' fees for both companies (Wolverhampton & Dudley is being advised by Freshfields) are expected to reach £20m.
Surprisingly, many of the regional breweries do not have a team of in-house lawyers. Marstons is a case in point.
Much of Ford's time is inevitably being taken up with the deal and it has persuaded him of the need for an in-house lawyer. The company has budgeted for an in-house lawyer this year – if it still exists.
Dorset-based brewer Eldridge Pope is also exploring the possibility of building an in-house department. It has taken on assistant Louisa Spicer on a one-year secondment from Salisbury-based firm Wilsons.
The larger national groups, however, have long recognised the need for in-house teams with knowledge of the industry, and the last few years have seen them building up their in-house teams.
When Bass' Richard Winter joined the company in 1994 there were only two lawyers on the brewery's in-house team. Now there are six.
He says Bass recognises the advantages of an effective in-house team, providing "more efficient management of legal affairs, more efficient management of projects and a saving of significant costs".
S&N's Vellani agrees with this analysis. "The role of the in-house lawyer is to reduce costs and add value," he says. His team now consists of two other solicitors and a legal executive.
Roselyn Scholfield, a commercial property lawyer and head of legal services at pub group Wetherspoons, was taken on seven years ago to help the company expand and, in particular, to advise on the conversion of non-licensed premises to licensed premises.
The emergence of the new chains of pub groups has led to an upsurge in licensing work among in-house lawyers in the sector.
And with the onslaught of a raft of legislation from both the UK and Europe relating to employment, health and safety, the burden is heavy.
The 48-hour week directive has had a "big impact", according to Eldridge Pope's Spicer, because of historical working practices in pubs. Add these developments to the expected "world-wide consolidation" that both Bass' Winter and S&N's Vellani are predicting and the future certainly looks busy.
Beer consumption may be on the decline, but the thirst for legal work in this sector looks
set to continue.