The Evolution Group has built a solid business based on a traditional focus on the client and judicious acquisitions of personnel and complementary firms, explains its CEO, Alex Snow.

From its modest beginnings in 2001 in a room above an off-licence in Kensington, London, the Evolution Group has grown to a firm of more than 600 people across investment banking and wealth and asset management. What has not changed, says Alex Snow, the group's founder and chief executive, is its vision: client focus and independent advice.

"Clients were becoming secondary to the day job of finding a way to increase top-line growth. It was increasingly about using the balance sheet to get business. I wanted to get back to my client-driven heritage, where service and long-standing relationships were paramount," says Mr Snow.

He argues that clients are increasingly tired of "balance-sheet bullying" and that the traditions of merchant banking are back in vogue in today's boardrooms. This will be reflected in a permanent change to the make-up of syndicates and is a healthy development for clients and the industry, he says.

"The ability to provide unconflicted advice is now seen as crucial. It is almost like having an 'advisor to the advisors'. Independent advisors will increasingly challenge the syndicate or intermediate between syndicate members," says Mr Snow.

Life has been pretty tough for UK-based firms such as Evolution Securities that focus largely, if not exclusively, on small- to mid-cap companies. The stock-broking business was hit hard by the economic slowdown. Through 2009, trading volumes virtually halved and initial public offerings were almost non-existent, and smaller firms also proved more reluctant to use rights issues than their larger brethren.

Creating opportunities

Evolution, however, moved to exploit the financial crisis to create new revenue streams and increase market share in other parts of the business.

Throughout 2008, it cherry-picked fixed-income people from troubled firms such as Lehman Brothers and Royal Bank of Scotland, taking its fixed-income headcount from six to 30 and enabling Evolution to benefit from the benign debt market conditions that then prevailed.

In January 2009, the firm bagged high-profile fixed-income analyst Gary Jenkins from Deutsche Bank, where he had been global head of fundamental credit strategy. Mr Jenkins' appointment no doubt helped Evolution secure Credit Magazine's Fixed Income Agency Brokerage of the Year award for 2009 and 2010. In October, Mr Jenkins, who before working at Deutsche was global head of credit research at Barclays Capital, was appointed head of Evolution's fixed-income business.

In February 2009, Evolution hired 45 people from Dresdner Kleinwort's (DK's) equities business - essentially the bulk of DK's equity sales and trading team and 18 analysts - which has helped to transform Evolution's mid-market business, an investment that should pay off as confidence creeps back into the sector. Together with the fixed-income hires, the front-office headcount in Evolution's securities business grew by about 60% in five months.

Moreover, many argue that Mr Snow outmanoeuvred bigger firms to secure some of DK's top-ranked analysts. According to city head-hunters commenting at the time, many of the DK team - including Arturo de Frias (now Evolution's head of banks), Simon Hales (now head of beverages) and chief economist Ian Harwood - were being pursued by other banks, including Barclays Capital and UniCredit.

"As early as 2006, we began to see problems [in the financial sector] and positioned ourselves accordingly," says Mr Snow. "At the time, we were heavily criticised in the press for being too conservative, and activist shareholders began buying shares. But we knew that when the balloon went up - as it surely would - we would then be in a position to use our relative strength to find interesting value. We've done that."

Growing the franchise

Evolution has also taken advantage of both the financial crisis and the recession to grow other parts of its franchise. It acquired wealth management business Singer & Friedlander for a song from Iceland's Kaupthing Bank at the height of the Iceland crisis. At a cost of just £3m ($4.8m), it acquired the fees and contracts associated with £1.2bn in client funds.

"Considering what was happening to Iceland and the parent bank, we judged that the risk of clients not wanting to transfer to our wealth management business, Williams de Broë, was minimal. We did get about £300m of redemption letters, but the outflows stopped pretty fast. The business now has about £6bn under management, up from zero in 2001. Our goal is to grow that to about £10bn in three years," says Mr Snow.

We have to keep moving the franchise forward. Stagnation is death

The results of this aggressive push are clearly visible in Evolution's full-year 2009 figures, with total group income more than doubling to a record £129.4m. Statutory profit before tax increased to £11.1m, following a loss of £12.7m in 2008. Adjusted profit before tax was £21.1m versus 2008's £1.9m. And while private client income has climbed a modest £7.9m, to £42.4m, investment banking income has almost tripled to £87m.

Mr Snow says there is more growth to come. "We have to keep moving the franchise forward. Stagnation is death," he says.

Fresh ideas

Since late September, it has been rumoured that Evolution's ambitious growth plans include a hostile bid for Panmure Gordon, one of London's oldest stock-broking firms, which in May sold a 44% stake to Qatari investment bank QInvest at a discount to its then trading price. Mr Snow declines to comment.

He says central to the notion of moving the franchise forward is the need to keep coming up with new ideas for clients badly affected by the shrinking appetite for small-cap company risk, and the subsequent unwillingness to invest in early revenue/growth companies.

Traditional forms of capital have become increasingly scarce for such companies - and firms on London's Alternative Investment Market (AIM) have been particularly hard hit.

"AIM could more accurately be called AIM-less," says Mr Snow. "Institutions have left the market because it's too illiquid; many AIM/small-cap hedge funds are winding down."

To plug this funding gap, Evolution founded Darwin Strategic in May to provide specialist financing alternatives for small-cap companies. Its first offering is an equity financing facility (EFF), with later plans to include convertible and debt products.

The EFF allows a company to raise capital by selling new shares in secondary markets via a drawdown. This is an easy way for listed companies to monetise secondary market volumes and minimises the level of dilution of existing shareholders. Darwin has carried out three EFF transactions already and has £100m ready to be placed.

Can we evolve from a mid-sized wealth manager and a fast-growing securities business, into a larger-scale investment bank and still stick to the principles on which we founded the business? Our track record suggests that we can

"It's an idea that was born in the bond markets and is commonly used in the US," says Mr Snow.

"The cost of equity for some of these small companies is extremely punitive; an EFF gives companies high levels of protection - because they decide the floor price - and we can offer a partial guarantee on the drawdown, which means greater funding certainty.

Darwin's latest EFF, a $25m facility for a US-focused oil and gas development production company Nighthawk, was signed in mid-October. It can be drawn any time over the next three years - the timing and amount of which is at the discretion of Nighthawk. There is no obligation to make a drawdown, but Nighthawk may make as many as it wishes up to the total value of the EFF, by way of issuing subscription notices to Darwin. Subject to certain conditions, Darwin will subscribe and Nighthawk will allot to Darwin new ordinary shares of 0.25p each in Nighthawk.

Maintaining the culture

Evolution is a firm that does not stand still. It is already the result of numerous name changes and mergers and acquisitions (from Evestment to EVC Christows, to Evolution Group, picking up Beeson Gregory, Williams De Broë and Singer & Friedlander along the way), but Mr Snow says he will fight to maintain the culture of the company; one based on a collegiate structure and client-focused principles.

"Can we evolve from a mid-sized wealth manager and a fast-growing securities business, into a larger-scale investment bank and still stick to the principles on which we founded the business?

"Our track record suggests that we can," he says. "We have come through several iterations, made several acquisitions, and we have executed deals without missing a beat."

Career history

Alex Snow

  • 2010 - Takes back CEO role of Evolution Securities after the exit of former CEO
  • 2001 - Founds the Evolution Group and appointed chief executive officer. Subsequently appointed chairman of its wealth management arm, Williams de Broë
  • 1997 - Joins Credit Suisse First Boston equity capital markets team following its acquisition of BZW
  • 1994 - Joins BZW working in equity sales, trading and capital markets
  • 1992 - Joins Hoare Govett as an analyst on its telecoms team
  • 1992 - Graduates from St Andrew's University, Scotland

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter