Numis warns over ‘effective closure’ of London IPO market

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Numis has warned that “the effective closure” of the market for initial public offerings in London hit its revenues last quarter, underlining the challenge Deutsche Bank faces when it takes over the UK broker this year.

Deutsche surprised investors in April when it agreed to buy Numis for £410mn, a deal that was taken as a vote of confidence in a London market wrestling with Brexit, a lacklustre IPO market and, more recently, a dearth of takeovers.

Since agreeing the deal, an already anaemic IPO market had deteriorated further. In a trading update on Wednesday, Numis said revenues in the three months to the end of June had weakened because of a “deteriorating market backdrop across the investment banking industry”.

IPOs, equity raisings and takeovers are the lifeblood of firms such as Numis, whose rivals include Peel Hunt. A report from Peel Hunt this week found that the value of UK takeovers in the first half of the year had fallen 45 per cent compared with the second half of last year.

Numis, which has 166 corporate clients in the UK and more than 300 staff, said its revenues tied to mergers and acquisitions year to date were so far ahead of the same period last year, despite “financing markets” becoming more difficult.

The company offered a grim outlook for the current quarter, warning that broader economic worries will “restrict” deal volumes for the rest of the year. Its balance sheet remained strong, Numis added, and it was “well positioned” to capitalise when the volume of transactions and IPOs picked up.

At the time of its takeover, Deutsche said Numis would help the bank build its base of corporate clients in the UK, describing the broker as a “compelling strategic fit”. Numis said it expected to receive the regulatory approvals and complete its sale to Deutsche by the end of this year.

UK brokers and boutique investment banks are braced for further consolidation.

But the pain from the slowdown in deals is not confined to London brokers. Investment banks globally face a prolonged slowdown in dealmaking that has hit activity and spurred a wave of job cuts across the industry. Fees for advising on completed mergers and acquisitions plummeted in the first half to the lowest levels in almost a decade.