Cenkos and Finncap merged to create the UK’s newest investment bank, Cavendish, in September. Many in the market see it as yet another example of two struggling brokers coming together during one of the toughest times in the sector’s history.
But less than four months after completing a tie-up that valued the investment bank at £43m, it is looking to expand, its co-chief executives have said Financial news.
“We are currently looking to add strategic employees to our base,” said Julian Morse, the former CEO of Cenkos, who now runs Cavendish alongside ex-FinnCap boss John Farrugia. “It’s not a huge hiring frenzy, but if we find someone good from the current market crash, we’ll take them.”
Cavendish reported a £2m loss in interim results for the 2024 fiscal year, but said the combined businesses had saved £7m from “synergies” since the tie-up. The newly merged bank started with about 200 employees, but now has 157 after the layoffs.
“Our goal from the beginning — and we’ve stayed true to that — was to maintain the front office staff, not cut from there,” Farrugia said.
“But we knew there were synergies around the back office functions. Yes, there have been layoffs and we will not hide from that,” he added. “But did we really lose people we wanted to keep? No.”
Cavendish will reveal further details of headcount reductions and cost saving initiatives in its second half 2024 results.
READ How Bob Diamond and Rich Ritchie plan to shake up UK investment banking with Panmure Liberum
A 20-year low for UK IPOs, combined with falling trading and research fees following the implementation of MiFID II in 2018, has hit City brokers hard. Corporate brokers typically charge a nominal fee to UK Plc clients seeking so-called adviser status, with the unwritten rule that they will be selected when a significant deal occurs.
A dearth of equity deals has forced many to expand into new areas, including mergers and acquisitions and debt advice, in the past two years, but tying has long been seen as a panacea for brokerage woes. Over the past 12 months, the dam has finally broken and most major brokers have gone into mergers.
As well as Cavendish, Deutsche Bank swooped on Numis in a £410m takeover in April last year, while earlier in January Panmure Gordon and Liberum struck a tie-up, leaving few significant solo brokers.
Executives say the drive for scale allows them to skimp on back-office staff, technology, real estate and infrastructure to focus on winning new business. Critics and brokers working at major investment banks said FN they see the mergers as a desperate survival bid for City brokers struggling to adapt to brutal European regulation, competition from bigger, more diversified rivals and a deal drought over the past two years.
Cavendish’s chief executives said that while the merger had brought savings, two companies had not come together from a position of weakness. Instead, they see it as a chance to expand into new areas with more firepower.
“Our peer group’s rhetoric over the past year has been about the need to diversify, entering new areas such as M&A, private M&A or debt advisory. Well, we already had all that,” Farrugia said. “We have an opportunity to keep pushing the gas while others really aren’t even in first gear.”
It’s a bumpy road ahead
Despite the landmark merger, Cavendish faces new competition in the SME sector, in which it specializes.
Panmure Liberum has the financial backing of Bob Diamond’s investment vehicle Atlas Merchant Capital, which has pledged to add to the newly merged bank’s balance sheet, and its senior executives said FN earlier that they are now seen as a “very big player” in UK investment banking.
Both Farrugia and Morse said the merger went as smoothly as it could, and that the lack of overlap meant minimal impact on staff or customers. There are now around 200 clients retained, more than Deutsche Numis but less than Panmure Liberum after their tie-up.
Farrugia said Deutsche Bank’s takeover of Numis, which will see the German lender inject financial muscle and push the City broker into new areas such as leveraged loans, meant it was a “very different business now” and less direct competitor.
“We’re not too worried about what people around us are doing – we have a plan,” he said. “We said the first phase was about integration, and this is the second phase – growth until 2024 and until 2025.”
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