The best time to buy a good firm is when its core business is slow. So, Friday’s news that Deutsche Bank is to acquire Numis, a UK-focused investment bank with about 340 employees and renowned as a leading arranger of UK mid-market IPOs, is perhaps no surprise.
Numis saw its investment banking revenues decline by 39% in 2022, and its shares fell by 25% over the 12 months prior to Deutsche’s offer.
Since the turnaround initiated by Christian Sewing in 2019, Deutsche has once again been rebuilding in the UK, leaning on its strength in fixed income, currencies and credit.
After its acquisition of Morgan Grenfell in 1990, Deutsche had built a London-centric, world-leading investment bank based on its strength in FICC, but was forced to dismantle much of it after the great financial crisis and associated scandals.
In 2021, it hired Daniel Ross from Barclays to head investment banking and client coverage in the UK and Ireland, and Derek Shakespeare to chair its M&A business. It recruited Lewis Burnett from BNP Paribas to be head of UK corporate broking.
The M&A fee pool has shrunk sharply over the last year. While that allows Deutsche time to show UK clients good ideas and consistent coverage during the quiet, it is a slow way to build.
Domino effect
Numis is corporate broker to some 166 listed UK companies – more than any other firm – and a decent equity research shop. Deutsche has agreed to buy it for £410 million, mostly paid in cash, at a 72% premium to last night’s closing price and a 60% premium to the volume-weighted average price over the last three months.
UK equity capital markets shuddered to an almost complete standstill in the first quarter of 2023, and Numis is the latest and perhaps most important domino to fall, as independent equities-focused investment banks struggle to survive.
As the UK struggles with the burden of its poorly thought-out and badly managed Brexit, Deutsche re-committing to the centre is a hopeful sign
The Deutsche takeover comes barely a month after the announcement of a merger between Cenkos Securities and finnCap.
Numis, however, has normally been a notch above firms such as Cenkos, as well as better performers like Peel Hunt and Liberum, in terms of its share in UK ECM, according to Dealogic.
It has tried to diversify into M&A, and most recently – like other investment banks – it has pushed hard in private markets. A tentative move into the rest of Europe with the opening of a Dublin office late last year was less convincing.
Bigger capacity
Deutsche will hope that buying now – rather than building – positions it well ahead of any rebound in the UK economy for the re-equitization trade as UK companies adjust their capital stacks to higher-for-longer interest rates.
And as the UK struggles with the burden of its poorly thought-out and badly managed Brexit, Deutsche re-committing to the centre is a hopeful sign.
The bank will soon be moving into new high-spec offices above London’s Moorgate station, a short stroll from Winchester House, its headquarters for the last quarter of a century. It is the largest EU bank in the UK and the largest employer in the City of London. Its new offices have a bigger capacity than Winchester House, suggesting it sees growth in London even while many investment banks are relocating staff to the EU.
The bank’s leaders think strategically as well as tactically. Numis may be a smart buy at a low valuation. Perhaps more important is the signal that, in the long battle for market share in financial services, there are still those in the EU that see London as a key ally in the contest against the US.