Deutsche Bank signals confidence in London with £410mn Numis deal

Deutsche Bank has agreed to buy UK broker Numis for £410mn in a surprise deal as Germany’s biggest bank bets on a revival for a London market that has struggled in recent years.

The bank said on Friday that it would pay 350p a share for Numis, a broker and investment bank which advises almost a fifth of companies in the FTSE 350 index on everything from equity raisings to acquisitions.

The purchase comes as the UK market suffers a steep decline in initial public offerings and equity raisings that are the lifeblood of firms like Numis. The group’s profits slumped more than 70 per cent last year amid a drought in IPOs and slowdown in other capital market activity.

As part of the deal, Deutsche will combine and co-brand its 35-person UK and Ireland corporate finance team with Numis, which has 166 corporate clients in the UK and 332 staff, spread across trading, research and capital markets.

“We have been evaluating how to accelerate the growth of our business in the UK and Numis represents a compelling strategic fit,” said Fabrizio Campelli, head of Deutsche’s investment bank.

The acquisition values Numis at a 72 per cent premium to the broker’s closing price on Thursday. Alongside 339p in cash, it will pay Numis shareholders an interim dividend of 6p and an additional interim dividend of 5p.

Numis shares soared almost 70 per cent on Friday, as investors welcomed Deutsche’s bet on a company whose stock fell more than 40 per cent last year.

The two sides had been discussing the deal for several months. Deutsche sees it as an opportunity to push further into Europe’s largest market for investment banking fees. It also intends to expand its business by offering Numis’s clients a broader array of services, including across international markets.

But Deutsche was forced to defend a transaction that appeared to reverse its retreat from equities trading. In 2019, the bank closed its equity trading business in as part of a radical overhaul that saw it slash 18,000 jobs and shrink its assets by €74bn.

The deal “is a surprise to us that needs lots of explaining”, said JPMorgan analyst Kian Abouhossein. The “strategic rationale is not clear for a bank that has not yet bought back any shares in 2023 which would have been highly accretive at today’s price”.

“It is not aligned with what shareholders want to see more of: retail-type stable earnings, more cost focus and capital return,” he added.

On a call with analysts and investors, Deutsche’s chief financial officer James Von Moltke said that the purchase would not come at the expense of buybacks. According to Anke Reingen, an analyst at RBC, von Moltke said that “the Numis transaction should not be seen as Deutsche re-entering the secondary equities business”.

Shares in Deutsche were down 1 per cent on Friday, extending their decline this year to 11 per cent. The bank trades at a valuation of 0.28 times the book value of its assets, among the most depressed of any bank in Europe.

The deal will also allow Deutsche to take advantage of the pressure felt by UK brokers during the past five years from the effect of Mifid II in Europe, a landmark piece of legislation that split out payments for research from trading commissions, hitting revenues.

Deepening strains on the sector have already triggered consolidation, with brokers Cenkos and FinnCap striking an all-share £43mn merger last month.

Numis co-chief executives Alex Ham and Ross Mitchinson will stay in their roles and lead the enlarged business. Mitchinson said Numis was not pressured into a deal despite the challenges facing the industry.

“We don’t have to do any deal, this is a really good fit for all our stakeholders, staff, and our clients, because of the extra capabilities Deutsche has around its balance sheet size, global M&A and other parts of the business,” he told the Financial Times.

Ham said that there would be “no material cost cutting” as there was “so little overlap” between the two businesses.

The transaction is expected to complete in the fourth quarter.