It’s a world most financial institutions feel at home in – mergers and acquisitions, and the buying and selling of businesses.
Just lately, though, the tables have been turned as increasing numbers of brokerage and finance houses find themselves either being circled by hungry rivals, or seeking the security that comes from merging with a larger player.
David Loudon, Leeds-based managing partner with Redmayne Bentley, a firm which nine months ago acquired the private client arm of smaller broker S P Angel, offers some insight into what makes the market move. “The main driver of this is regulation,” he says.
“Compliance is becoming more and more of a burden, which sets smaller firms thinking about whether or not they want to carry on any longer.”
He says larger stockbrokers, who have sorted out their compliance issues, offer a reliable haven for smaller firms who can face the hassle no longer.
The other side of the coin is revealed at the larger end of the scale, where large financial institutions, whose stockbroking activities account for only a small part of their overall business, find it irksome to devote management time to regulation and compliance issues.
Under these circumstances it is not uncommon for an entire retail team to up stakes and move to a firm that meets their needs more precisely.
The benefits to firms like Redmayne Bentley when an experienced team with a register of loyal investors arrives on the doorstep seeking admission, are self-evident, but Loudon points out:
“We also feel that our clients benefit, because they get to deal with a firm that is highly focused, and able to look very closely at their requirements.
He adds: “Brokers come to us in various ways – often from other firms that either don’t have the same focus as us or are not interested in clients who fall below a certain level of funds under management.”
In recent months, deal activity seems to have accelerated, and the ether is thick with talk of transactions done – or on the anvil – including the acquisition of London’s oldest stockbroking firm Hichens, Harrison & Co by the Indian brokerage firm Religare, for a figure reportedly in the £55 million bracket.
Religare have ambitions to go global, and are understood to be in the market for at least one more London acquisition – an institutional broker.
Early in the summer, the investment bank and stockbroker Blue Oar stumped up a more modest £1.7 million for Astaire & Partners.
However, it is at the top end of the scale – the multi-billion pound institutional brokerage sector – that the flurry of M&A activity is most visible.
Little more than 18 months after its own acquisition of the US institutional investment firm ThinkEquity, Panmure Gordon now has a big new stakeholder in its enlarged business.
EFG-Hermes, the largest investment bank in the Gulf, recently took a 10 per cent stake.
Meanwhile the investment bank Collins Stewart, a FTSE 250 company, is being wooed by a number of potential suitors, a list which includes Religare once again; Macquarie, the Australian financial services group; and the Japanese investment bank Nomura.
These are substantial businesses, and not untypical of players at the beefy end of a sector, which a recent report revealed has more funds under management – a staggering £3.4 trillion – than all the world’s sovereign wealth funds and hedge funds combined.
The Investment Management Association, which published these figures, takes the view that the question of who owns which institution is now largely immaterial.
It says cross-sector consolidation and expansion have created “a number of globally diversified financial services firms” which embrace a wide range of services as well as clients spanning both individuals and institutions.
In the words of a recent IMA report: “There is still a view that further consolidation will take place if market conditions deteriorate substantially.”
It adds: “In this scenario, trends for both the retail and institutional marketplaces are felt to be pushed inexorably towards a position where weaker performers will not be able to survive.”
Ian Cornwall, director of UK regulation with APCIMS, the Association of Private Client Investment Managers and Stockbrokers, agrees that a comparison between the stock market of 20 years ago, and the market today, would reveal that numerous mergers had been completed over the years.
In part this is due to the high entry costs associated with starting a brokerage from scratch: cheaper, and quicker, to buy a ready-made outfit and hope that the team that goes with the business decides to stay put.
“Stockbroking per se is a very personal business. If Fred decides to walk, often the clients will follow,” says Cornwall. “That can create challenges for the management in keeping everyone on side.”
He says that although there has been some consolidation at the retail end of the sector, most recent activity has been centred on institutional brokers.
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