The decline in IPOs in the UK and in M&A deals is bad news for domestic investment banks. But self-help is always the best remedy. One of the few bright sparks in the gloom is consolidation among brokers that serve UK mid-caps.
Last year, Cenkos Securities merged with finnCap, and Deutsche Bank paid a premium to acquire Numis, corporate broker to 166 listed UK companies, also adding its decent research capabilities.
In January 2024, Panmure Gordon agreed a merger with Liberum to create what the two claim will be the largest UK independent investment bank. It will have 250 quoted corporate clients with an average market cap of £250 million. The parties cite Dealogic data to claim the new Panmure Liberum would rank number one for UK IPOs of under £1 billion market capitalization during the past five years.
A glance at their accounts, however, shows that recently this has not been a great business to be a leader in.
Neither firm has reported full-year 2023 numbers yet, but the data suggests this was the slowest year in a generation for UK listings.
The UK government’s efforts to prod regulators into taking advantage of their newfound Brexit freedoms to promote London as the global capital for capital are sounding increasingly desperate
For 2022, the last full year for which numbers are available, Panmure Gordon reported a loss of £15.5 million, after a profit of £3.6 million in 2021 and a loss of £3.5 million in 2020.
Liberum, meanwhile, which was founded in 2007, recorded a loss of £9 million for 2022 after a £5 million profit in 2021.
But it’s always worth keeping an eye on Panmure Gordon thanks to the deep industry knowledge of its chief executive Rich Ricci, the flamboyant former head of Barclays Capital, and of Bob Diamond, founding partner and chief executive of Panmure’s biggest shareholder Atlas Merchant Capital, and Ricci’s old boss from his days as chief executive of Barclays.
Diamond stated of the proposed transaction, which still requires regulatory approval: “This merger will lift the level and quality of service to mid- and small-cap businesses and investors in the UK and beyond. These businesses are the lifeblood of the UK economy and require flexible and tailored solutions to enhance their productivity.”
Liberum’s founders will hope that Atlas Merchant has sufficient capital to nurse the combined firm through a continued deal drought. ECM bankers who last year were predicting a rebound in IPOs in 2024 now appear to be suggesting that may come in 2025.
The UK government’s efforts to prod regulators into taking advantage of their newfound Brexit freedoms to promote London as the global capital for capital are sounding increasingly desperate.
Deeper expansion
But Diamond is smart. The new firm will expand beyond the traditional focus on public equity capital raising and expand deeper into M&A, private capital raising, and new service lines including debt advisory.
Before the acquisition of Lehman Brothers in 2008, when Diamond turned Barclays Capital – which he headed before stepping up to become group chief executive – into a full-service investment bank with ECM and M&A capability, Diamond had built the remnants of the old BZW into a decent debt and capital advisory firm.
He always wanted ECM and M&A, but made the most of what he inherited. “We’ve developed a model that integrates risk management and debt markets,” Diamond told Euromoney. He might not have been making any money in IPOs, “but is equity new issues the high-margin investment banking business it once was? We simply don’t know what the equity new issue model will be in future.”
That was Diamond in 2002, making the case that an investment bank could make a good living from capital structure advisory without leading lots of equity raisings.
History may not repeat. But it certainly echoes.
