As profits tumble, London's smallest financial firms are looking for deals that will cut costs and produce higher revenue. The brokers Ambrian Capital and Panmure Gordon confirmed yesterday that they were in merger talks, while the boutique financial firm Blue Oar received an unsolicited £18m takeover approach from the buyout vehicle Evolve Capital.
In a joint statement, the natural resources-focused Ambrian and the 130-year-old City institution Panmure said they were in the early stages of talks that might lead to a merger. Separately, the investment group Evolve Capital made an all-share offer to buy Blue Oar in a deal that it says would value its target at around £18m. The bid is being backed by Blue Oar shareholders who include four former directors, led by Evolve's executive director Edward Vandyk, a founder and former head of the boutique firm. Blue Oar is likely to reject the bid.
Analysts said the two announcements show that, in difficult market conditions, companies want to strengthen balance sheets and reduce costs through mergers. Profits at broking firms and the bonuses paid to their staff have slumped in the past six months.
But such mergers are anything but a slam-dunk. Industry insiders and investment bankers alike often stress the difficulty of combining so-called people-based businesses such as brokers and investment banks. The highly relationship-driven nature of the companies' activities makes it essential to retain key staff. This often means spending time negotiating packages to keep the best performers, making it very difficult and often expensive to complete a successful deal. Evolve would pay for the reverse takeover by issuing 1,025 new shares for every 1,000 shares in Blue Oar and said that its offer represented a premium of about 19.6 per cent to Blue Oar's closing price on Friday of 9p.
Evolve wants to rein in Blue Oar's ambitious expansion plans to conserve cash. The suitor said it had identified valuable business units within Blue Oar, particularly private client stock-broking. Under Evolve's proposal, Blue Oar's wealth management division, Rowan Dartington, would be eventually listed, allowing a distribution of its stock to Evolve shareholders. Evolve and its allies, primarily former Blue Oar directors, hold about 31.7 per cent of Blue Oar shares. Evolve needs 51 per cent of shareholders to back its plan for it to be successful.
"Blue Oar has substantial cash resources and, given current economic and market conditions, Evolve's strategy is to prevent any unnecessary further depletion of such cash resources," said Evolve.
The firm may also welcome a cash counterbid for Blue Oar from a third party that would allow the former Blue Oar directors to sell their stakes.Reuse content