City brokers agree £42m merger deal

Cenkos in tie-up with rival Finncap

TWO of the City’s leading brokers are set to combine forces in a move that will create the Square Mile’s biggest investment bank focused on small-cap firms.

Finncap and Cenkos Securities have agreed an all-share merger to create an entity worth £42m with a combined workforce of around 230.

It comes as brokerage firms scramble to find new business amid a downturn in the economy hitting deal-making activity across the financial sector.

The tie-up will see Cenkos investors receive 3.2 shares in Finncap for each share they hold in the business, valuing the two companies equally at £21m.

After the merger, both sets of investors will control roughly 50pc of the new company, while bosses of Finncap and Cenkos will stay on as co-chief executives. Cenkos chairman Lisa Gordon will become chairman of the combined company.

‘The two firms’ cultures are very similar and our client lists and capabilities are complementary,’ she said.

‘This is good for our clients, our employees, our investors and the UK capital markets as a whole.’

The deal has already been backed by Finncap investors holding around 52pc of the company’s shares.

These include major backers such as venture capitalist Jon Moulton, its largest shareholder, tech queen Vin Murria and Sam Smith, the company’s founder and former boss who stepped down last year.

Meanwhile, notable Cenkos investors including City grandee

Jim Durkin, who was one of its founding investors and served as chief executive twice, have also backed the deal taking total support to over 32pc.

‘This merger is a true meeting of minds,’ said Cenkos boss Julian Morse. His Finncap counterpart John Farrugia said the merger was ‘ the right thing to do’ and would bolster the business against competitors, some of whom he called ‘pretty damn weak’.

Shares in Finncap rose 5.4pc, or 0.63p, to 12.25p following news of the merger.

Cenkos, however, slid 1.3pc, or 0.5p, to 38.5p. The tie-up may have come as a surprise to some in the Square Mile given that just four months ago merger talks between Finncap and Panmure Gordon fell apart.

While the collapse of the deal was attributed to the two brokers failing to agree on a price, a City source claimed they just ‘did not get on’.

The failure to merge with Finncap was a blow to Panmure’s colourful boss Rich Ricci, an investment banker who once described himself as the ‘maddest f****r on the planet’, as well as the firm’s major backer, exBarclays boss Bob Diamond.

Meanwhile, others speculated the tie- up could spark more mergers in the industry. ‘It’ll trigger a wave of consolidation driven by a long period without deal flow and a high cost base,’ said Adam Pollock, director at boutique investment manager Oberon.

He added that all eyes would now be on the jilted Panmure and what it would decide to do next.

The Cenkos-Finncap merger comes as City brokers and investment managers scramble to shore up their businesses, which have been knocked over the past year as the economic downturn slammed the brakes on deal-making, fundraising and stock market floats.

It has weighed heavily on the share prices of several firms, with Finncap’s stock having slumped 57pc over the last 12 months while Cenkos has fallen 48pc.

Rival small-cap focused brokers have also suffered on the market, with Peel Hunt down 17pc and Numis slipping 18pc.

‘It’s like the Gobi desert out there and everyone is thirsty and fighting for scraps,’ said AJ Bell investment director Russ Mould. He added that brokers coming together and cutting costs seemed ‘inevitable at some stage’ if demand did not pick up, particularly from smaller growth companies.

‘Right now, that seems unlikely,’ Mould said.