Jefferies confirms Hoare Govett acquisition

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Jefferies, the US-based investment bank, on Wednesday confirmed its acquisition of Hoare Govett, the UK broker, from Royal Bank of Scotland.

The deal, for a “nominal sum”, will give Jefferies the historic Hoare Govett name, along with the broker’s clients and about 50 staff.

RBS took over Hoare Govett as part of its acquisition of ABN Amro in 2008, but it decided to sell the operation as part of its retreat from investment banking. The combined operation will be called Jefferies Hoare Govett.

Jefferies’ decision to expand in the UK corporate broking market comes after a tough year for the sector, with a decline in capital raising on Aim and the main market and squeezed commissions forcing a wave of redundancies and consolidation. But it is not the only broker confident enough to expand amid the gloom.

On Wednesday N+1, a Spanish boutique investment bank, completed the acquisition of the broking arm of Brewin Dolphin. Santiago Eguidazu, chairman of N+1, says London is by far the most attractive destination for midsized European companies seeking a public listing.

“We believe that now is a clear opportunity in the UK market,” says Mr Eguidazu, adding that N+1 will consider acquisitions of other small brokers.

It did not pay anything for the business but along with the management has injected £5m of capital into the broker, now called N+1 Brewin.

Mr Eguidazu wants N+1 Brewin, with 55 employees, to be a London capital markets hub for a pan-European investment bank serving midsized companies.

“There is a niche opportunity in Europe, to provide mid-caps with mergers and acquisitions, debt advisory and capital markets services . . . And the European capital market is in London; [foreign midsized companies] will need to come,” he says.

However, rival brokers are dismissive of N+1 Brewin's prospects, saying the broker’s profile has declined in the past year. Its corporate client list has dwindled to 57 companies, from 90 when the takeover was announced last February.

A strong corporate client roster is important for a broker, which will expect lucrative advisory work when the companies conduct fundraising or acquisitions.

“For the last few years it’s been so hard to poach clients from Brewin – they were a terrific competitor,” says one senior broker. “But now their clients are becoming restless and looking at moving – that’s a massive change.”

“I don’t think [N+1 Brewin] stands a chance,” says another rival broker, arguing few UK institutional investors are likely to take the risk of investing in unfamiliar small companies from other European countries.

N+1 is not the only group to sense an opportunity to expand. Canaccord is poised to complete the takeover of Collins Stewart, while Westhouse recently finished the acquisition of Arbuthnot's broking arm.

Oriel Securities increased its net headcount by 35 in 2011 and hired five analysts and a salesman in January, taking its total workforce to 151.

“We know at some stage [market conditions] will change, and we want to be in a good condition when there is a change,” says Simon Bragg, Oriel’s chief executive.

Rival senior brokers praise Mr Bragg's ambition, saying Oriel will reap huge rewards if markets recover significantly within the next year. But they warn that if the current conditions persist for much longer than that, Oriel will be forced to cut back.

Mr Bragg maintains the company is not taking undue risk. “As we have put investment in, companies and institutions have rewarded us by giving us more business – and as a result we can invest more,” he says.

Even brokers with a more bearish outlook have seen a chance to recruit. Most of the 190 staff at Evolution Group’s investment banking division were made redundant after Investec agreed to buy the company last year, while several other brokers have cut jobs.

One of those was FinnCap, which laid off its retail and insurance specialists last year. But FinnCap has replaced last year’s casualties with hires in busier areas such as natural resources. “You do get very good people who are part of the redundancy process,” says Sam Smith, chief executive.

However, Ms Smith says she has been at pains to keep costs down, and does not expect any recovery for at least a year.

“They say you should plan for the worst and hope for the best,” she says. “But there is too much hope factor in some of these [other brokers’] business models.”

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