A dozen years ago, Bob Diamond and Rich Ricci stood at the pinnacle of British finance, serving respectively as chief executive and boss of corporate and investment banking at Barclays.
Since leaving the lender more than a decade ago in the wake of a £290mn Libor-rigging fine, the two men have turned their focus to a smaller corner of London’s banking sector: the City’s mid-market brokerages.
On Tuesday, the pair unveiled a merger between their stockbroker Panmure Gordon and competitor Liberum, creating a combined entity that generated about £70mn in revenue last year, according to people familiar with the companies.
Panmure Gordon is owned by Diamond’s investment vehicle Atlas Merchant Capital, and since 2020 has been managed by Ricci, as chief executive.
The deal leaves the two men who — together with colleague Jerry del Missier — were known as the “three musketeers” of Barclays Capital, angling for opportunity in the challenged UK small and mid-cap corporate broking market.
Diamond and Ricci are hoping to defy a slump in company listings and a dearth of dealmaking, which has hit a sector that is reliant on advising companies on deals and providing research to make money.
“It’s a very good cultural fit on a human level, but also a very matched-up ideology of how we go about business,” Liberum chief executive Bidhi Bhoma said in an interview. “That makes for a very obvious combination.”
Panmure Gordon and Liberum said the tie-up, which requires regulatory clearance, would create the City’s biggest adviser to UK-listed companies with more than 250 clients. However, it would be only 14th largest based on its clients’ aggregate market cap, according to Adviser Rankings data, a way behind investment banking giants such as Goldman Sachs and Morgan Stanley.
Executives at the groups, and at some competitors, said Diamond and his flamboyant lieutenant Ricci had spotted an opportunity to build a strong business. “They see an opportunity here and they want to work at it,” said one person who has known both men. “Underestimate them at your peril.”
But the deal comes after another tough year for brokers with a moribund IPO market and a significant number of listed groups succumbing to bids to take them private.
“We are in a bad cycle for deals and the UK,” said one banker involved in the deal, adding he was hopeful for a recovery but “in the meantime we have to huddle together for warmth”.
EU regulations known as Mifid II, which force brokers to charge clients separately for investment research and trading, have also squeezed smaller brokerages. Brokers pitching for work are now asked more frequently by companies about their financial strength.
Panmure reported a pre-tax loss of £16.6mn in 2022, the most recent year for which accounts are available, after revenues fell by almost half to £27.6mn. It broke even only once between 2018 and 2022, losing more than £70mn before tax over that period.
Liberum lost £11mn before tax in 2022 after a 43 per cent decline in revenues to £28.4mn.
Ricci was not available for comment while Diamond’s Atlas Merchant Capital did not respond to an interview request.
A tougher backdrop has already spurred dealmaking in the sector. Last year saw both the merger of UK small-cap brokers Cenkos and FinnCap and the £410mn acquisition by Deutsche Bank of UK broker Numis.
“This is a deal that had to happen because both of them are in difficult financial positions,” said one City banker of the Panmure-Liberum combination. “Put them together and, if they get it right and they can get through the egos and the integration pain, it’s something to be feared.”
“Managing the compliance and regulatory burden takes a lot of people and costs money,” added one rival executive. “If they can get rid of duplicate costs it makes sense.”
The tie-up eliminates one more competitor for each of Panmure and Liberum, but cutting costs as a route to profitability would require “very aggressive axe-swinging”, said the boss of another City broker, adding that this would cause unease for some on the combined group’s 280 staff. Some back-office employees and others with overlapping roles are likely to be shown the door, though people close to the deal said staff would account for a minority of the £10mn-plus in annual savings.
In a statement the companies said Panmure Liberum would “benefit from cost and revenue synergies”. The companies declined to comment further on their detailed cost-cutting plans.
Diamond took control of Panmure Gordon — founded in 1876 and where foreign secretary David Cameron’s father and grandfather held senior roles — in 2018 alongside Qatari investors via Atlas Merchant Capital.
Since leaving Barclays in 2012, he has built a portfolio of investments and chaired a blank cheque group that made a failed run at a crypto deal.
Diamond has sought to build up Panmure, which says it has doubled its corporate client base in the past five years, including through the acquisition of small-cap broker Whitman Howard in 2020.
He also installed his former right-hand man Ricci as chief executive. Ricci, a favourite of British tabloids who once reportedly called himself “the maddest fucker on the planet”, is known for his love of horseracing and tweed three-piece suits.
The company has been eyeing a merger for more than a year, said several people in the sector. Bhoma said that “early examination” of a deal took place in summer 2023 with discussions intensifying in the autumn. The two groups have just a handful of clients in common, he added.
As well as cutting costs, the deal will give the newly minted Panmure Liberum financial backing and liquidity from Atlas.
Executives at both companies said they plan to diversify away from investment banking, research and sales by expanding in mergers and acquisitions and private capital raising. Adding new services such as debt advisory will be expensive and take time, said rivals. But doing so would make profitability less cyclical, said Panmure and Liberum as they announced the deal.
Ricci will be chief executive while Liberum founder Shane Le Prevost will chair the enlarged group. Between them Atlas and Le Prevost will hold a majority of the shares.
“It does look like a pretty sensible combination. The overlap is very complementary in terms of client base,” said a banker at one of the groups.
Whether the gambit pays off will depend both on executing the deal and on the fortunes of the London market.
“We are a good domestic house, but we face lots of headwinds: Mifid II, global investors seeing the UK as a backwater and sterling as an isolated and idiosyncratic currency,” said one of the people with knowledge of the deal.
“Maybe we don’t deserve to exist, but if we don’t that means there is no mid-cap public market, and that is terrible for the UK.”
