Two British stockbrokers were snapped up on Tuesday in deals that kicked off long-awaited consolidation in the UK's fast-growing mid-cap broking sector, where activity has outpaced the FTSE 100 over the past year. In two separate announcements, Iceland's Landsbanki paid a generous 42.8 million pounds ($80.54 million) for stockbroker Teather & Greenwood, , while rival Durlacher will merge with Panmure Gordon, the stockbroking arm of independent investment bank Lazard.
"It's an attractive area," said Richard Wyatt, chairman of Panmure Gordon.
"It's a fragmented market, where no one player has emerged as a leader, so there is scope for consolidation," said Wyatt, who will become executive chairman of the merged Panmure Gordon & Co.
The UK's smaller brokers have cashed in on a boom in the small and mid-cap company sector, after many big investment banks pulled out of that market over the past three years.
The FTSE 250 index of mid-cap companies hit a record high of 7196.8 on Tuesday, surpassing the previous record set in September 2000.
On the UK's junior stock market, AIM, there were 243 initial public offerings last year, compared with just 50 IPO's on the main London stock market.
Juicy fees from broking these deals have drawn more firms into the mid-cap space, finally sparking consolidation.
But the chunky 49 percent premium paid by Landsbanki for Teather & Greenwood could prove a deterrent to other buyers.
"At the right price these broking firms could be interesting, but not at these kinds of prices," said one senior investment banking executive.
Consolidation still looks set to accelerate with another Icelandic bank, Kaupthing Bunadarnanki, which has built up a stake in broker and fund manager Singer & Friedlander, on the prowl.
Boutique broker Shore Capital has just appointed Rothschild to advise on acquisitions and Manchester-based broker W.H. Ireland Group has also been touted as a possible predator.
On the private client broking side, Rathbone Brothers Plc is vying with UK wealth manager Rensburg to win Carr Sheppards Crosthwaite.
Teather & Greenwood itself, with Landsbanki's capital behind it, could do more deals.
"There are one or two sub-scale operators and we would be happy to look at that at the appropriate moment," said Ken Ford, who will remain executive vice-chairman of Teather & Greenwood after the Landsbanki acquisition. He said the firm was keener, however, on hiring quality staff and teams if they were available.
Lazard's Panmure-Durlacher deal, effectively a reverse take-over, will combine the larger, privately held Panmure Gordon with Durlacher to create a bigger broker owned one-third by Durlacher, one-third by Lazard, and one-third by its staff.
Lazard, which had bought Panmure from German bank WestLB in January 2004, will now retain an interest in the UK stockbroking business, but at arms length.
The privately held investment bank, which is planning an IPO this year to raise some $850 million, focuses mainly on blue chip clients in Europe, the United States and Asia.
Durlacher, a fallen dot-com star, tried to return to its stockbroking roots but struggled to compete on its own.
The new company will transfer its listing to AIM from the main market and will have an estimated market value of 60 million to 80 million pounds. The business will provide corporate broking and advisory services, plus equity sales, research and trading on small, mid-cap and large-cap firms.
"Our deal creates the only British broking firm which covers FTSE 100 clients through to AIM companies," Wyatt said.
Panmure, founded in 1876, is broker to FTSE 100 firms WPP Group Plc and Associated British Foods, and has a substantial small and mid-cap broking client list. Wyatt said there would be some cost savings from the merger in terms of property and staffing, adding that there was some overlap on jobs which could mean some headcount cuts.