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In a market that is freezing over, UK brokers must huddle together for warmth.
The latest squeeze, announced on Tuesday, comes between Panmure Gordon and Liberum. One can trace its history back to Victorian times; the other has the pluckiness of a relative newbie. This is a sensible deal, but it is one that smacks of defensive desperation given the backdrop.
Panmure’s owner, Atlas Merchant Capital, led by former Barclays boss Bob Diamond, becomes the largest shareholder with 35 per cent. Next in line is Liberum founder Shane Le Prevost with 18 per cent. Despite having more than 250 listed mid-cap clients, the two say only six overlap.
The UK mid-cap world is a challenging one, both cyclically and structurally. Listings were virtually non-existent last year. Just £953mn was raised through local IPOs last year, down 40 per cent, says EY. The UK’s remaining crop of midmarket brokers is hugely reliant on listings. The new Panmure Liberum claims to have led the way for sub-£1bn IPOs over the past five years.
Moreover, the fan base for UK equities is shrinking. The world’s largest investors, managing $2tn of assets, think very little of UK stocks. Being cheap isn’t enough: only 3 per cent expect to add exposure to UK equities in the next year, says consultant Mercer. Almost a fifth want to cut their exposure to Blighty. That is the worst spread of opinion for any of the 20 asset classes and regions.
Undeterred, insiders suggest optimistically that the combined group could generate about £100mn of revenue in 2025. This is similar to what the pro forma group made in 2021, the last peak. The idea is that this will happen with about a quarter less overheads — roughly right for cost reductions in bank transactions. That would turn 2022’s lossmaking business into a very profitable one.
Deutsche Bank paid £410mn for larger local peer Numis back in April. Using that as a benchmark, and using last year’s cyclically low revenues, the Panmure Liberum deal is worth perhaps £100mn and twice that in 2025 if the group’s hopes are achieved.
Combinations in this sector are fraught — even without the drag of turgid local market conditions. Liberum has a wider spread of share ownership among its employees than Panmure. That will have to change to avoid friction.
Another danger is how this new group competes with a much better-capitalised Numis. More consolidation among beleaguered UK brokers must be a good thing. But any top international bank can scoop up talent and clients, if things start looking up.
That the UK is an unloved and inexpensive market is nothing new. If equity markets are recovering, value propositions like Britain’s should actually attract contrarian investors. Still, this pair may find it challenging to generate enough heat to thrive.
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