When Bob Diamond reunited the band and installed former Barclays investment bank boss Rich Rich at the helm of City stockbroker Panmure Gordon in 2020, he quickly began a new wave of money-losing deals. The company has begun to roll back its expansion into other fields.
A rebrand as a “21st century merchant bank'' (a term that has largely fallen out of use since the 1990s) was a failure, with Panmure losing £35m over two years as it splurged on new traders. Mr Rich had promised to “get back to basics” as a corporate broker, a move that appeared prudent given the firm returned profits of £3m in 2021.
But a year later, Panmure slumped to a £16m loss as brokerages battled the lowest IPOs in 20 years and low research fees following the EU's MiFID II regulations. Now, Mr. Rich and Mr. Diamond are making a new move to revive the brokerage firm founded in 1876 by merging it with rival Liberum in an all-stock deal announced on January 16th.
The move comes as brokers fight to survive amid a continuing shortage of trading in the UK. Richard Morecombe, managing director of the newly rebranded Panmure Liberum, said the objective had always been to increase scale and the brokerage had long acknowledged the need to consolidate. .
“When we started negotiating with Liberum, they were pretty much the only broker in the city that we hadn't talked to yet,” he said. financial news He said this in an interview immediately after the partnership was announced on January 16th.
Bidi Bouma, a former boss at Liberum who will become deputy CEO of the new business, said the “core” of the merger talks began in the summer, but the two companies have only begun to talk seriously about a partnership. He said it was autumn.
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Panmure Liberum is the latest example of a partnership between two of the sector's leading companies, bringing together around 290 staff and 250 UK business customers. It comes at a time when pure brokers are facing what one banker described as an “existential crisis” due to a lack of capital market activity.
Consolidation, long touted as a necessary evil in a tight-knit sector, saw Deutsche Bank pay £410m for Numis, the City's largest broker, and see Cenkos and FinCap merge to form a new investment bank called Cavendish. With the establishment of the company, the number increased rapidly in 2023.
Diamond, a former Barclays chief executive who stepped down in 2012 amid the LIBOR rigging scandal, took control of Panmure through his investment firm Atlas Merchant Capital in 2018, with the company running until 2022. It suffered losses of around £70 million over four years. Despite making a profit in 2021, Panmure reported a loss of £16.6m a year later (latest figures available), while Liberum posted its first ever profit in 2022 after a 43% drop in revenue. revealed an annual pre-tax loss of £11m.
Figures for 2023 have not been published, but Bouma said the combination of the two businesses generated around £70m of revenue last year as the market improved. He added that the combined business is expected to have a cost base of £50m for the full year 2025.
Given the industry's woes, the merger between Panmure and Liberum can't help but be seen as a crisis-driven move to cut costs. But Rich and Diamond believe the middle-market brokerage space doesn't offer enough opportunities to gain market share, according to people familiar with the situation. Mr Diamond has frequently said that the financial services sector as a whole is too fragmented and that the UK investment banking market, which many executives believe has bottomed out, could be an obvious target.
“We don't see this as a defensive move, we see it as a positive and powerful move,” Morecombe said. “We believe in public equity capital markets. We all understand that things need to change to further encourage investment in the UK public markets, but we will continue to make significant contributions to that role. I believe I’m in a good position to be a player.”
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Atlas Merchant Capital, which held approximately 76% of Panmure Gordon, will become the largest shareholder with approximately 37% of the new company, followed by Liberum founder Shane Le Prevost, who will jointly own shares in both companies. will hold a majority of Qatari investors who previously invested in Panmure will ultimately own about 5% of the new business.
Diamond's investment vehicle also promised further financial support to the newly merged broker.
Both Panmure and Liberum executives note there is no overlap in customers or activities, but merging the two businesses is expected to reduce costs. Boma said there would be “very significant cost synergies” through the merger.
“How these businesses operate on a day-to-day basis, trading systems, software, facilities, other suppliers… those synergies are very important,” he said. “There may be a certain degree of synergy with people, but the synergies with non-people are just as material.”
One factor contributing to the proliferation of intermediary partnerships is the addition of back-office costs that are often the first to be incurred during a merger. Revenue-generating roles are often slow to reduce, but executives at rival companies say many staffers are upset by continued rumors of a merger, making it easier to win.
Clayton Bush, a managing director in Liberum's consumer and leisure investment banking team, joined Berenberg in September, while Panmure's head of natural resources trading, John Prior, resigned in January to lead his own business. launched.
Panmure Liberum's 250 corporate clients mean it has the largest number of UK Plc clients of any broker. The firm ranks 14th by client market capitalization, according to data provider Advisor Rankings, a measure of success more common among large investment banks focused on FTSE 100 clients. .
A rival banker said Panmure Liberum needed to ensure its strategy was more than just having a large number of corporate clients. “Top brokers are loss leaders,” they said. “We need a real deal.”
Prior to the merger, Liberum was already focused on expanding its investment banking business into new areas, particularly its M&A business. Most of City's brokers had accepted the need to diversify their revenue streams even before the shortage of UK stock trading.
Mr Morecombe said the new business would be “all cap” and include servicing customers valued at less than £100m and “some FTSE 100 customers”.
“There will also be an element of diversification,” he said. “This comes from having a wide range of sectors, but we also expect further diversification to include more M&A, perhaps private M&A and debt advisory.”
Meanwhile, Bouma said the sharp freeze in IPO activity is showing signs of improvement. “We are actively working on an IPO in 2024, which will be quite large,” he said. “This was not happening at the beginning of 2023, and it is definitely an improvement.”
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To contact the author of this article with feedback or news, email Paul Clarke