- Deal to create the largest mid-market broker
- Firms react to ‘challenging' capital markets
- Shareholders to own new firm 50/50
UK broking firms Cenkos (CNKS:AIM) and FinnCap (FNCP:AIM) surprised the market with the news they had agreed to merge in an all-share deal valuing the combined business at around £42 million.
Shares in Cenkos gained 1.4p or 3.5% to 40.4p while FinnCap shares were flat at 11.65p as investors digested the news.
WHY ARE THE COMPANIES MERGING?
According to the combined boards, the deal will create ‘a market-leading full-service advisory firm for growth and investment companies’.
The merged firm has over £50 million of pro-forma annual revenues and more than £20 million of cash on its balance sheet, which clearly puts it in a stronger position to pitch for business from its 210 listed or quoted clients and new customers.
As well as bringing in more business, which has been a slog over the last year due to the dearth of new listings and capital raisings, there are ‘potentially significant’ cost savings from combining common systems, processes and infrastructure.
Cenkos and FinnCap shareholders will own 50% each of the new firm, which will keep the FinnCap name.
Cenkos chief executive Julian Morse, who is staying on as co-chief of the combined group, called the merger ‘a true meeting of minds’, while his FinnCap counterpart John Farrugia, who also assumes the role of co-chief executive, said the two firms shared ‘the same vision, desire and drive to create one of the leading financial services advisory firms focused on the mid-market’.
HOW HAVE SHARES IN OTHER BROKERS REACTED?
The next question investors and corporates will be asking themselves is what the Cenkos-FinnCap deal means for rival firms and whether it is the shape of things to come.
Shares in Numis (NUM:AIM), which has a market cap of £236 million, added 2% to 219.50p after recently plumbing similar lows to those seen during the pandemic.
The firm reported a 33% drop in revenues and a 70% drop in profits for the year to September 2022 reflecting the ‘challenging’ conditions in capital markets ‘with deal volumes remaining subdued and unfavourable conditions persisting’ for its UK corporate clients due to high inflation and rising interest rates.
Shares in Peel Hunt (PEEL:AIM), which had rallied 35% to 114p in the first six weeks of the year, dipped 1.4% to 105p on the news.
The firm has a market cap of £130 million after coming to market in late 2021 and posted revenues of £41 million in the six months to the end of September 2022, down more than 40% from the previous year.
