Numis’s advisory businesses, including M&A, are going strong, says its M&A head, and bear out its diversification strategy. Marie Kemplay reports.

UK investment bank Numis is perhaps best known for its rise to prominence in London’s corporate broking markets. But in its recent results, it is its advisory revenues, including mergers and acquisitions (M&A), that have grabbed the most attention. 

“Last year was a record year for advisory revenues at Numis,” says head of M&A Stuart Ord. Despite the challenging market backdrop, that strong performance seems to be continuing into 2022.

Career history: Stuart Ord  

  • 2015 Head of M&A, managing director, Numis
  • 2008 UK advisory, director, Barclays Capital 
  • 2000 European M&A, director, ABN Amro
  • 1997 Chartered accountant, Deloitte

There is no hiding the fact that the bank’s capital markets business has struggled this year, with first-half 2022 results showing a 61% year-on-year decline because of the precipitous drop in initial public offerings (IPOs) and other equity-raising activity in the early months of this year, with no recovery in sight as yet. But M&A, and the advisory side of the business more broadly, has continued to perform well. Advisory revenues grew 39% compared with the first six months of last year. The bank’s latest trading update, in early July, also suggests it has remained resilient into the third quarter of the year.

Diversification strategy

For Mr Ord and his colleagues, while these results are not universally rosy, they do provide vindication of the diversification strategy Numis has been pursuing for several years. 

Numis originated in 1989 following a merger of brokers Hemsley & Co Securities and Raphael Zorn. Initially establishing itself as an important player in London’s institutional stockbroking markets, it has since expanded to have a presence in the US, and has just received regulatory approval to open an EU office in Dublin to support further European growth.

The bank’s heritage continues to be evident in its solid UK corporate client base. “We serve more than 20% of the FTSE 350 in some capacity,” says Mr Ord. More broadly it has about 180 core broking clients that are “the bedrock of everything we do. Whether we’ve led on their IPO, we’re acting as their broker, advising them on debt financing strategy or supporting them with M&A activity either on the buy or sell side.”

“We believe we have more UK-focused investment banking staff than anyone else,” adds Mr Ord, who describes Numis as a “UK investment banking powerhouse”. However, he is also keen to emphasise the bank’s focus on growing its European client base and continuing to cultivate US activity, as well as international activity in a broader sense. “Most of our clients are UK-listed, but they’re not all UK-focused companies in terms of where they operate.”

Numis’s capabilities have increased drastically in recent years, says Mr Ord. “We’ve built up the equity capital markets, sales, trading and broking part of the business to offer more services,” he says, noting the bank’s growth capital solutions business, which specialises in private placements for high-growth businesses, and its debt advisory team. Unsurprisingly, Mr Ord is also keen to highlight its M&A offering, “a diversification which is really reaping rewards now”.

M&A growth

Mr Ord joined Numis in 2015 with 15 years of M&A experience gained at institutions such as Barclays and ABN Amro, and has overseen significant growth in the size of Numis’s M&A business and its revenues since then. For example, in full-year 2020, the bank was in 38th position in the banking league table for involvement in UK M&A transactions, when measured by value, according to data from Refinitiv. Just one year later, for full-year 2021, it jumped up to 14th position. This figure is even higher for overall UK public M&A deals, where Numis features as a top 10 adviser.

Mr Ord also observes that the growth capital solutions and M&A parts of the business were responsible for more than half of Numis’s investment banking revenues in the first half of this year, “something which hasn’t been the case before”. He points out that, despite the market headwinds, the first half of 2022 was actually Numis’s second-strongest first half on record. “We also have good visibility of what deals have been announced and what is coming down the pipeline for the second half of 2022, so I think M&A will have another good year,” he says.

Part of Numis’s success, Mr Ord believes, is that the corporate broking approach to business lives on within the organisation. “We are active with, and do transactions for, clients who trust us. We have long-term relationships, built on ongoing engagement and advice, rather than trying to get involved in every deal happening in the market,” he says. Looking at its M&A revenues for the first half of 2022, Mr Ord says 100% came from its core broking base of clients, “not all of whom will engage in M&A, but about a third will”.

However, Mr Ord also acknowledges the clearly changing market conditions. “In a survey of UK corporates and institutional investors, which we did in February of this year [Numis spoke to 84 FTSE 250 directors and 200 institutional investors], 86% of UK corporates said they expected to do some M&A in the 2022 calendar year. And while the main drivers for doing those deals remain in place, clearly the conditions have changed,” he says. He adds that many corporates have done the initial screening and preparations for deals, but have now put those plans on pause due to macroeconomic and financing concerns. “M&A is a confidence game, and there is a lot of uncertainty about market conditions at the moment,” he says.

He observes that for private equity, the situation is evolving. Deals are still possible, although the cost and availability of debt financing have worsened due to the macroeconomic environment: “There is still a wall of cash and there is still some access to finance, although [it is] more difficult,” he says. “Given the market conditions, there will need to be a greater level of confidence that a target can weather the economic conditions, but there are still opportunities out there for private equity, particularly given recent share price declines.”

North American corporates, he says, are also still relatively active and highlights US-based GXO Logistics’ £1bn acquisition of UK firm Clipper Logistics, which completed in May 2022 (although this remains subject to potential review by the UK Competition and Markets Authority), where Numis was financial adviser to Clipper.

“US businesses tend to be significantly larger. So, if an acquisition isn’t going to form a huge part of its overall business, it can have more confidence to do that deal,” says Mr Ord, amid the continuing trend of US corporates benefitting from UK/US foreign exchange rates and opportunities for multiple arbitrage. UK corporates can often be in the sweet spot for this type of activity. 

Strategic drivers remain

The M&A market may have tightened in recent months, but the underlying drivers supporting deal activity remain intact, Mr Ord believes. “Coming out of the pandemic, a lot of UK corporates identified opportunities for long-term growth, and a related driver is the need for increased digitalisation,” he says. Many businesses have been investing in digitisation, in order to match changing consumer behaviours, maintain competitiveness and deliver increased efficiency. This creates opportunities for the most switched-on companies, he adds. 

“Companies have been focusing much more on the digital parts of their business, primarily because they have realised they need to for their own sake, but they have also realised it creates the opportunity to take market share from competitors that haven’t been as focused on it – by organic growth or by acquisitions,” he says. “That driver is still present across many sectors.”

Mr Ord also notes the pressure for consolidation in industries such as financial institutions, including asset managers, remains a hot topic, alongside real estate and healthcare remaining attractive sectors for deal activity. Although the market backdrop has changed, the imperative to take strategic action now to secure long-term growth has not changed. “Shareholders will still support the right deals, but boards are being more cautious,” he says.

ESG’s evolution

Environmental, social and governance (ESG) considerations also remain an important driver, and its prominence as a consideration within M&A activity has continued to grow, says Mr Ord, particularly in relation to environmental factors. “The due diligence around this area is much more pronounced than in the past,” he says. “Now, it is seen as a big risk area and investors are keen to fully understand the ESG profile of acquisition targets. This is true whether the buyer is a corporate or private equity.”

However, this is a trend which has yet to fully develop, he believes. Although there are exceptions, where certain funds are already targeting companies that are seen to be the strongest performers against ESG metrics (or have significant potential for improvement), for most M&A bidders it continues to be seen as a risk to be managed, rather than a value creation tool. 

Mr Ord does, however, expect this to change over time, not least as it has become a growing area for shareholder activism. “I think ESG is certainly becoming a growing area of shareholder activism,” he says. “During the pandemic, and then following the Ukraine invasion, we’ve seen all public shareholder activism campaigns dip, but people often forget there is always a lot of private engagement taking place.”

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