Finncap brushes off market negativity to launch surprise takeover of Cavendish
City broker Finncap, chaired by veteran venture capitalist Jon Moulton, today confirmed it was taking over M&A sell-side advisory firm Cavendish.
Finncap plans to raise £6m by floating the combined group on London's junior alternative investment market (Aim) in early December in a listing that will value it at £46m.
Lord Leigh, former Conservative Party treasurer and senior partner at Cavendish, told City PM it would use the funds raised to grow the business “slowly and organically with new people".
Finncap largely did the deal itself, with help from nominated adviser Grant Thornton.
Lord Leigh said: “Despite having completed over 600 transactions, we learned a lot from doing it ourselves.”
The decision to float comes after a number of recent initial public offerings (IPOs) suffered price drops after listing – including Aston Martin and Funding Circle.
Read more: Aston Martin stutters on stock market debut as shares slip
Despite recent capital markets turbulence, Finncap chief executive Sam Smith said the size of the deal and the fact that 45 per cent of the new company would be owned by the board meant that it was the right time to float.
The deal comes amid growing efforts to consolidate within the market for servicing small-cap firms after a new regulation – the Markets In Financial Instruments Directive (Mifid II) – was introduced in January, changing the way brokers can charge for investment research.
Lord Leigh said UK foreign direct investment had been holding up recently against the backdrop of Brexit, citing Cavendish's recent role advising shareholders of British luxury swimwear brand Orlebar Brown on its sale to French fashion house Chanel – which he said showed a continued appetite for global investment in British brands.
Smith said that while Brexit may cause some short-term difficulty in the markets next March, it “generally doesn't affect our overall ability to raise money for companies".
Read more: What can we expect from a pre-Brexit Annual Budget?
Fraser Thorne, chief executive of Edison Investment Research, said: “At first glance the deal looks to make sound corporate sense, adding the well-respected corporate finance capability of Cavendish with access to capital through the broking arm of Finncap."
He added: “That said, these kinds of mergers don‘t always go smoothly…Where you have two very distinct cultures there are often tensions but this is equally true within an integrated bank."