Will Deutsche’s Numis deal backfire?

Numis, a broker for small and medium-sized companies that has been in business in London for 150 years, has decided to “abandon its independence”, say Patrick Hosking and Martin Strydom in The Times. It has accepted a £410m all-cash bid from Deutsche Bank. The news sent shares in Numis up by 67%. The tie-up is expected to provide “a much-needed boost to the City”, especially as corporate brokers “have faced thin times, with a shortage of flotations and other capital raisings as well as lower volumes of equities trading”.

Deutsche’s decision to “swoop” on City broker Numis may feel “a bit like a return to the 1990”, when big lenders bought some of “the most revered names” in stockbroking and merchant banking, says Alex Brummer in the Daily Mail. However, while Deutsche clearly thinks that Numis’s “useful tech and media clients” can help “offer a route back to broking glory”, many clients “value the personal connections and service of the smaller financial groups”, and feel lost when served by a bigger company.

So, rather than boosting the German bank’s business, the deal may simply end up creating room “for challenger brokers and merchant bankers who recognise the value of nurturing clients”. You can argue that this is a “wildly expensive way to cross-sell to just 166 corporate broking clients” or ask why Deutsche “is buying a cash equity franchise just three years after closing its own”, says Bryce Elder in the Financial Times. And why isn’t Deutsche buying back its own shares, on just 0.3 times tangible book value, instead?

However, the deal comes at an opportune time for Numis given that it that it has reported a 72% drop in annual profit in 2022, on sales down by a third. It is also good news for Numis’ joint CEOs Alexander Ham and Ross Mitchinson, who have reportedly agreed to sell their shares and options to Deutsche for £14m.