Last year, specialist investment bank Greenhill advised longstanding client Virgin Money on its purchase of Northern Rock – the British bank which was nationalised when the financial crisis hit in 2008 – for around £1 billion. Managing director Edward Wakefield and analyst Helen Sartory were key members of the team that helped the deal go through successfully. We spoke to them to find out more about their involvement.
Managing director, European financial institutions group
Greenhill has a general financial advisory (GFA) relationship with Virgin Money – as we do with many corporate clients – which means that even when there’s not a transaction going on, we provide them with support and advice and act as a sounding board for ideas. It’s led to a close-knit relationship: we understand their business better than most so when a potential transaction appears, Greenhill is able to provide a better, well-informed advisory service.
We started working with Virgin Money just before Northern Rock was nationalised, when a Virgin-led consortium was interested in purchasing the bank. We helped them to find the required finance and position Virgin Money as the preferred bidder, but for a number of reasons, the government took the decision to nationalise. Because of our GFA relationship, we maintained close ties with Virgin Money. When the government decided to return Northern Rock to the private sector, Virgin Money’s interest was revived and we were the natural choice to advise them on their bid.
Everyone remembers the images of people queuing outside Northern Rock banks after the liquidity crisis in 2008 and the brand has been through a difficult time. But in its reconstituted form, it was a very attractive investment. It was, strategically, a very stable business with more deposits than loans and with a good quality mortgage portfolio – so it had good assets, good people, enough branches and a very secure funding base. All in all it should be a good investment for Virgin Money on the terms negotiated.
Much of the work on a deal like this comes before the bid is even launched. Our job was to help Virgin Money to raise the capital it needed through attracting new backers, to assess the competition, and to help the company position itself appropriately – making sure it presented a bid to the UK government that made sense to everybody, including the taxpayer and Virgin Money’s existing and incoming shareholders.
The Financial Services Authority (FSA) is never going to give anyone approval to buy a big bank unless they’re confident in its business plan. It needs to be credible, so we put great effort into ensuring all of the financing was in place and that it satisfied the FSA’s requirements. Corporate transactions of any scale are very complex but in addition, this deal involved a heavily regulated public financial institution and, being taxpayer owned, was conducted in the public eye – so there was a great profusion of things for us to deal with.
Greenhill had a core team working on the deal for the best part of a year: a managing director (me), a vice president, an associate and two analysts. We also had others dropping in to join the team when we needed more manpower. My role was to manage the team, as well as lead and direct liaison with the other parties involved. As principal financial adviser, it’s Greenhill’s job to be at the centre of everything, which means a lot of dealing with lawyers, accountants, due diligence specialists and the government’s own financial advisors.
While you can never be fully certain until the ink has dried, we knew that Virgin Money’s bid was the most commercially viable and compelling. It has a very powerful brand, was stable enough to take on a loss-making bank and had the skills and resources to improve it. We also managed to close the deal while people had grave concerns about the European financial system – so there was the chance that the government would withdraw the deal, had things got worse. Ultimately, I think beyond those commenting for their own political ends, people recognise that it was a good outcome for all involved.
I had a more unconventional route into investment banking than some: I studied music at Cambridge, after which I did a one-year management course at the business school there. After interning in the sales and trading department of a bulge bracket bank, I realised I wanted to work for an M&A specialist, but one of a more boutique nature, as I wanted greater exposure to the deals I worked on than I might get at a very large bank. Greenhill fitted the bill perfectly.
I was brought onto the Northern Rock team having been at Greenhill for six months. I had worked on some deals previously, including a debt restructuring for Findel PLC, but this was my first deal of such a large scale. The sale process started kicking off early in 2011, so it was a steep learning curve for me, since I was relatively new to the bank. My role included helping Virgin Money put together a robust financial model for the transaction and then to keep track of sector trends and the regulatory environment, so that we could keep the financial model in context, as well as supporting the rest of our team on the many tasks that we had.
I was one of the members of Greenhill’s team that liaised most closely with Virgin Money on the development of their financial plan. It had to be flexible enough to support the needs of many different parties. The model was used by rating agencies, existing and incoming investors and the FSA, so it was crucial to the success of the deal. It was a lot of responsibility – but that’s the kind of thing I came to Greenhill to do.
I enjoyed working closely with senior members of Greenhill staff, including Edward. I was able to approach my senior colleagues with all sorts of questions, which was helpful as I had to learn a lot in a very short period of time. I also enjoyed the variety of tasks I was given – everything moved so quickly, we often had to respond to things on the hop, which led to really varied days. There was mass elation in the office once the deal was completed. It had been a long journey for a lot of the team and the deal hadn’t always been in the bag. We had a few, tired celebratory drinks, but everyone went to bed shortly afterwards – we were exhausted!
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