When Bob Diamond got the band back together and installed former Barclays investment bank boss Rich Ricci at the helm of City broker Panmure Gordon in 2020, he immediately started unwinding a loss-making foray into new areas of dealmaking.
An unsuccessful rebrand as a “21st-century merchant bank” — a term rarely used since the 1990s — lost £35m at Panmure in two years as it splurged on new dealmakers. Ricci promised to “get back to basics” as a corporate broker, a move that seemed shrewd as the firm returned to a profit of £3m in 2021.
But a year later, Panmure slipped to a £16m loss as brokers battled a 20-year low in IPOs and tepid research fees in the wake of the EU’s MiFID II regulations. Now, Ricci and Diamond are making a fresh play to revive the broker, which was founded in 1876, by merging with rival Liberum in an all-share deal unveiled on 16 January.
The move comes at time when brokers are battling for survival amid an ongoing dearth of UK deals. Richard Morecombe, who has been installed as president of the newly rebranded Panmure Liberum, said the aim was always to get bigger, and the broker had long accepted that consolidation was necessary.
“When we opened talks with Liberum, it was just about the only broker in the City we hadn’t already spoken to,” he told Financial News in an interview shortly after the tie-up was announced on 16 January.
Bidhi Bhoma, the former boss of Liberum who becomes deputy CEO in the new venture, said that the “kernels” of a conversation about a merger started during the summer, but the two firms started talking seriously about a tie-up during the autumn.
READCity brokers Panmure Gordon and Liberum to merge
Panmure Liberum is the latest example of a tie-up between two big players in the sector, bringing together around 290 staff and 250 UK corporate clients. It comes at a time when a dearth of capital markets activity has seen pure play brokers facing what one banker described as an “existential crisis”.
Consolidation — touted as a necessary evil in the close-knit sector for years — surged in 2023 as Deutsche Bank paid £410m for the largest City broker, Numis, and Cenkos and FinnCap merged to create a new investment bank called Cavendish.
Diamond, the former Barclays chief executive who left in 2012 amid a Libor-rigging scandal, took control of Panmure through his investment firm Atlas Merchant Capital in 2018, and the firm lost around £70m over the four years to 2022. After the £3m profit in 2021, Panmure report a loss of £16.6m a year later — the latest figures available — while Liberum unveiled its first-ever annual pre-tax loss of £11m in 2022 after a 43% decline in revenue.
While 2023 numbers have not been published, Bhoma said that the combined businesses generated around £70m in revenue last year as markets improved. It sees a cost base of £50m in the full year 2025 as the two businesses come together, he added.
With the struggles of the sector, it’s difficult not to see the merger of Panmure and Liberum as a crisis-driven move to save costs. However, people familiar with the situation said that Ricci and Diamond see the mid-market broking space as an underserved opportunity to gain market share. Diamond has often said that the financial services sector broadly is too fragmented, and the UK investment banking market that many executives believe has bottomed out could be seen as an obvious target.
“We think this is a positive and strong move, as opposed to a defensive move,” said Morecombe. “We believe in public equity capital markets. We all understand that things need to change to encourage more investment into UK public markets, but we believe we will be well-positioned to be a very big player in that role going forward.”
READ Deutsche shrugs off mixed history of bank deals with purchase of Numis
Atlas Merchant Capital, which had around 76% ownership of Panmure Gordon, will become the biggest shareholder of the new entity, with approximately 37%, followed by Liberum founder Shane Le Prevost, with the two together holding the majority of the shares. Qatari investors, who previously had a stake in Panmure, will end up with around 5% of the new venture.
Diamond’s investment vehicle has also pledged more financial backing to the newly merged broker.
While both Panmure and Liberum executives have pointed to a lack of overlap in clients and activities, by bringing together the two businesses cost-cutting is expected. Bhoma said there would be “very material cost synergies” through the merger.
“How these businesses operate on a day-to-day basis, the trading systems, software, premises, other suppliers… those synergies are very material,” he said. “There will be a degree of people synergy, but the non-people synergies are just as material.”
One driver for a surge in broker tie-ups has been joining back-office costs, which are often the first to go during a merger. While revenue-generating roles are often slow to be cut, executives at rivals say that many staff have been unsettled by ongoing rumours of mergers and have been easier to prise out.
In September, Clayton Bush, a managing director in Liberum’s consumer and leisure investment banking team, joined Berenberg, while Panmure’s head of natural resources dealmaking John Prior quit earlier this month to launch his own venture.
Panmure Liberum’s 250 corporate clients mean it has the largest number of UK Plc customers of any broker. Data provider Adviser Rankings puts it at 14th by market capitalisation of clients, a more common metric of success among big investment banks, which focus on FTSE 100 clients.
One banker at a rival said that Panmure Liberum will need to ensure the strategy goes beyond just having a large number of corporate clients. “The headline brokership is a loss leader,” they said. “You need actual transactions.”
Before the merger, Liberum was already focused on expanding into new areas of investment banking, particularly doing more M&A work. Most City brokers accepted that there was a need to diversify revenue streams, even before the dearth in UK equity deals.
Morecombe said the new venture would be “all cap” and will include servicing clients with a value of less than £100m as well as “some FTSE 100 clients”.
“We will also have an element of diversification,” he said. “That comes from having a range of sectors, but we also see more diversification to include the likes of more M&A, maybe private M&A and debt advisory.”
Meanwhile, Bhoma said that the deep freeze of IPO activity is showing signs of improving. “We are actively pitching for IPOs in 2024, ones that are going to be material in size,” he said. “That was not something that was going on at the start of 2023, so it is definitely improving.”
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To contact the author of this story with feedback or news, email Paul Clarke
