A good barometer of deal flow in the City is the number of people telling you how busy they are. In the wake of the tie up between Liberum and Panmure Gordon, announced yesterday, what will fewer competing advisers in the London market really mean for growth companies?
In a market in which there has been a slump in corporate activity, we have seen a cavalcade of mergers between London-based advisers in the last 18 months: Deutsche Numis; Cavendish (comprising finnCap and Cenkos); and, now, Panmure Liberum.
On this latest deal, the CEO of Liberum, Bidhi Bhoma, said: “clients will have access to strengthened sector expertise, wider distribution, more pools of capital and a larger trading platform.”
There is no doubt that the last 12 months have seen incredibly difficult market conditions across the board. The chatter from a number of houses since the City came back from the holidays suggests there are a number of companies looking to début in Q1 2024, as well as, The Sunday Times with their article at the weekend highlighting companies looking to list in the coming weeks. The real question, therefore, is what does the new advisory landscape mean for UK listed businesses?
While consolidation brings many benefits to the industry: enhanced offerings, merger synergies and the concentration of exceptional talent, what does it mean for the companies that need advice? Particularly for small cap businesses, one could argue that fewer market participants focused on the needs of larger businesses risks penalising growth companies in search of specialist help in an affordable way.
Smaller companies play a very significant role in the UK economy. But with interest rates as they are, and institutional investors increasingly focused on profitable income stocks, access to capital on the public markets is becoming harder. In addition to this, we’ve seen a raft of small and mid-cap companies becoming M&A targets. Depressed share prices, volatility risk, continuing geopolitical uncertainty, and attenuating supply chain issues in addition to a strong US dollar, means that Private Equity is having a field day, with plenty of UK assets seeming remarkably well-priced. Another consequence of the challenging trading environment that these issues predicate is the consolidation of advisers. With fewer companies to advise, merging, and pooling cash is a way of improving sustainability; a means of survival for some advisory houses given the recent lack of deal flow.
That being said, it’s not all doom and gloom. Investment banks are hiring new talent and have deals in the pipeline and new regulations being brought in means it should be easier for companies to list. Those who’ve tightened their belts and survived the leaner times will flourish as the market strengthens in the coming months. As we know, with the completion of each consolidation cycle comes opportunities in the form of new business launches.
“Scale-ups are fuelling phenomenal results in our economy. A tech sector worth over $1trillion – by far the largest in Europe. 1.8 million people employed in start-ups right now – triple the number in 2018” said UK Science, Technology and Innovation Secretary, Michelle Donelan in a speech at Plexal on 16 January. So, we are all entitled to derive a measure of confidence that there will be growing numbers of businesses looking for public capital in the next 12 to 24 months. These are just the kinds of businesses who will benefit from support from dynamic and innovative equity capital market advisory services. If consolidation is, for now, the story of our times, it looks likely that growth will be firmly back on the agenda 6 months from now.