By Charlie Conchie
The City’s small investment banks and brokers have been through a wave of consolidation in the past 12 months. Could Peel Hunt be next?
It came as little surprise in the Square Mile when reports of a Panmure-Liberum tie-up began to surface earlier this month.
Rich Ricci and Bob Diamond’s hunt for a broking stablemate is understood to stretch back as far as 2020 when Panmure called in advisors to begin sizing up rivals and testing out potential suitors for a merger. As they finally confirmed a deal yesterday, the former-Barclays duo were predictably quick to stress the strategic rationale.
But the deal points to the tectonic shifts still shaking the smaller investment banking market after a drop-off in dealmaking and IPOs over the past year.
Several of the City’s broking houses have already sought out safety in scale to weather the downturn. Cenkos and Finncap struck an all-share £45m merger last year and Numis was snapped up by Deutsche Bank to extend the German lender’s reach in the UK. Panmure even launched a bid for Finncap in 2022 that fell apart in a disagreement over terms.
“They’ve all been looking at each other in this area of the market,” Patrick Sarch, an M&A partner at Hogan Lovells, tells City A.M.
However, one notable outlier remains: Peel Hunt. Formerly the biggest of its crop of mid-tier banks and brokers, the FTSE 250 firm has also suffered a bruising hit to its bottom line.
In its half year results last month, Peel Hunt posted a pretax loss of £0.8m, down from a £0.1m profit in the same period last year, which itself was a 99 per cent plunge from 2021 when the IPO market was going gangbusters.
While a deal might make sense in theory, the more fundamental issue is there may not be any worthy suitors left.
“They’re slightly left at the dance looking for a partner,” says one City deals advisor. “But on the other hand, you don’t want to be two drunks propping each other up at the bar.”
The market has viewed the flurry of deals with some scepticism as outright defensive plays, but the firms themselves argue there is strategy. Numis, for instance, now has a route to sell its services into larger clients and retain firms as they grow. Deutsche now has a specialised and tailored capability to sell into the mid market. Cenkos can tap into FinnCap’s M&A capabilities, and FinnCap has a newly expanded specialty and client base in equities.
For Peel Hunt, that strategic rationale may be an increasingly difficult thing to conjure up. The firm declined to comment when asked whether it was looking at potential deals yesterday.
Some in the market think the firm may be playing a shrewd hand by sitting out the storm and leaning on its independence as a selling point.
“My understanding that Peel Hunt have actually shored up and they’ll pick up clients as they leave the new consolidated banks,” says Neil Shah, head of research at Edison. “Their strategy right now is to invest and grow, and try to win market share out of the consolidation that takes place.”
Buying a smaller firm is also just one of the options on the table – Peel Hunt could in theory look at selling itself to a bulge bracket bank in a Numis-style deal. But, as one lawyer points out, that would require a desire for growth in the UK market that is in short supply in the current climate.
“You can’t rule out that one of the big lending banks might decide that actually there is scope to cross sell and get in on the game. But a look at the market, and I can’t see anyone at the moment who really has the appetite to do it,” says a lawyer working in the sector.
“I suspect [Peel Hunt] would probably look and say, what’s our opportunity now? Our opportunity is that we’re the last big independent broker.”
For the moment, it appears that Peel Hunt may be happy to stand independently and bet on a rebound in the market in the coming months.
Bosses and analysts at the firm have already launched a volley of calls for City reform this year and laid out a list of demands to breathe life back into the City. If the firm is forging ahead as an independent, the urgency behind those calls becomes clear.
