On Monday October 16, about 30 bankers from Deutsche Bank’s UK corporate finance team made the short trip from Great Winchester Street to the Numis headquarters. It’s just a 15-minute walk to their new home on Gresham Street, but as far as both banks are concerned it marks a quantum leap in their respective ambitions.
Before the closing of its £400m acquisition of Numis three days earlier, Deutsche’s roster of corporate broking clients had dwindled to seven — only two of which were in the FTSE100 — after International Consolidated Airlines Group quietly dropped Deutsche Bank as its corporate broker over the summer. Post-acquisition, Deutsche now has 167 corporate clients, placing it ahead of JP Morgan.
Having spent the past four years playing catch-up in the wake of its restructuring, it has suddenly overtaken its biggest rivals.
“First and foremost, this is about growing our footprint in UK investment banking,” Henrik Johnsson, co-head of EMEA investment banking at Deutsche Bank and the new chairman of Deutsche Numis, told GlobalCapital. “This is not about cost synergies — it’s about revenue synergies. It reflects a desire to increase our strategic coverage of clients in the world’s second-biggest investment banking market. Post the 2019 restructuring, all four divisions are firing on all cylinders.”
A formidable force
Since July 2019, when Deutsche announced the closure of its European electronic equities business, it has lost clients and revenue share in the UK, the world’s second-largest corporate finance market behind North America. While the restructuring was essential to a turnaround in the German bank’s fortunes, the retrenchment in equities allowed full-service rivals to capitalise. Without a prominent position in London, Deutsche’s ‘Global Hausbank’ strategy lacked conviction and its promise to become the leading European bank looked hollow.
But the creation of Deutsche Numis creates a formidable force. The move is also accompanied by Deutsche’s ongoing expansion in its corporate finance business. Johnsson added: “In addition to acquiring Numis, we have hired a large amount of sector bankers around the world because we see a big opportunity to grow the advisory side of the business. We think there are a lot more resources we can deploy.”
The combined entity now has about 155 investment bankers, and when Deutsche’s strength in financing is aligned with Numis’s corporate client list it throws down the gauntlet to rivals in corporate broking and investment banking — particularly as it comes when rivals are embroiled in cost cutting measures. Barclays, Citigroup and Jefferies are trimming jobs in their London-based divisions, while UBS and Credit Suisse are in the midst of a multi-year integration that has seen both shedding UK staff in the run-up to the completion of their merger.
“The UK investment banking fee pool is at a cyclical low and that makes the transaction easier because it allows time to integrate and get the teams co-operating,” Johnsson said. “So, we can position ourselves for a significant upturn over the next couple of years.”
Part of the reason Deutsche still has room to grow is that it was still at the tail-end of its restructuring during the corporate finance boom of 2021, when rivals were increasing the size of their teams at great expense to meet demand. At the time, it meant that Deutsche was short-staffed and didn’t have the resources to execute on all the deals it could have done — a factor in its decision to acquire Numis rather than simply build organically.
Well positioned for the next cycle
Deutsche will enter the next cycle emboldened but it will also face a challenge to realise the potential of its 167-strong client list. These are corporate broking clients, a business that is not lucrative on a standalone basis. Numis charges a small retainer to each of its clients, a sum that generated just £12.4m last year.
The very reason banks have corporate broking businesses is that they provide a point of access from which they can sell the full suite of corporate finance products, from underwriting bond and equity issuance to advising on lucrative M&A deals. Overall, investment banking revenues slumped by 39% to £94.2m in 2022. That was compared with £155m in 2021, a record year which may never be repeated.
Over the past 15 years Numis has moved from being a broker with fewer than 100 clients and a market cap of less than £100m to having 165 corporate clients with an average market cap of £1.4bn. And as the size of the companies it serves has grown, so too has its need for a broader range of investment banking products.
Numis has tried to reflect the shift in its client base while contending with a slump in equity capital markets activity and constraints on its international business, wrought by Brexit.
It has added products such as private capital fundraising while also engaging in a push to monetise its corporate broking clients by pitching to become their M&A adviser. This has resulted in it being awarded a number of defence mandates — which in some cases have been fleeting as UK mid-cap companies, the bedrock of Numis’s business, have fallen prey to a wave of takeovers.
No overlap
The acquisition moves Numis further along in its journey. Ross Mitchinson, co-CEO of Deutsche Numis, says: “We have migrated to being seen as a strategic adviser, rather than just a broker, but there are things we have not been able to capture.
“The obvious ones are things like helping our clients with global M&A and offering more complex financing requirements such as bond issuance and acquisition finance. In addition, the wider Deutsche platform has far better connectivity with non-UK corporates, and with private equity groups.”
Numis has its own industry teams. But because they are UK and broker-focused there is little overlap with Deutsche’s global industry teams. Deutsche’s ability to provide event-driven financing across ECM and M&A is an obvious benefit, as is its broader strength across the full suite of financing products.
Beyond corporate finance, Deutsche also thinks its global credit financing and solutions team, which sits within its markets business, could be especially relevant for Numis’s roster of mid-cap clients.
Rivals have been quick to suggest that there is a chasm in terms of culture between the two banks, but the management teams of Deutsche and Numis say they quickly found common ground in their takeover talks. This was greatly helped by the fact that both had what the other craved.
Gauging the client reaction
Still, when the deal was signed in April, Mitchinson and Numis co-CEO Alex Ham were keen to gauge the reaction of their clients.
Mitchinson says: “From the moment the deal was announced, we were pretty busy getting out and talking to our corporate clients about the transaction and the reaction was very good. Clients wanted reassurance that we will continue to have the same energy, enthusiasm, people and service culture that they really prize.
“On top of that, if we can offer them more solutions when they want them, they see that as a win-win. Clients have urged us not to forget why they appointed us in the first place, and it has been a case of reassuring them we are going to continue to provide brilliant research with great distribution. It’s something we will have to prove over time but that’s absolutely the plan.”
Johnsson adds: “We want to preserve the Numis culture at all costs and expand it by contributing some of our bankers into the same culture. Their high levels of client service are really impressive, and we want to change as little of it as possible.”
Co-heads lead the way
The approach it has taken in combining the businesses evokes memories of how JP Morgan constructed its joint venture with Cazenove in 2005 — a deal that has provided a rare blueprint for a successful investment banking acquisition. JP Morgan retained the Cazenove brand and management and moved its staff across.
Deutsche has followed this playbook. From the branding to the senior management, this is collaborative exercise. Mitchinson and Ham, the former co-CEOs of Numis, retain their roles in Deutsche Numis, with Johnsson as chairman. The management team comprises co-heads from each business. Dan Ross, who joined Deutsche from Barclays two years ago, will run investment banking at Deutsche Numis along with James Taylor, his counterpart at Numis. Lewis Burnett, who ran corporate broking at Deutsche, moves across to Deutsche Numis as co-head alongside Mark Lander.
Equity capital markets is run jointly by Mark Hankinson from Deutsche and Jamie Loughborough at Numis. Meanwhile Numis banker Stuart Ord co-heads M&A with Oliver Ives from Deutsche.
In any co-head structure, collaboration and trust are vital. Then it’s up to the team to convince clients where Numis serves as a broker to a company that it has a sufficiently compelling offer for them to shift allegiances from their incumbent advisers or financing banks.
European banks have steadily lost ground to US rivals in ECM over the past decade but for Deutsche this was compounded by its 2019 restructuring, which hampered its ability to win senior roles on IPOs and rights issues. In addition, a slew of blue-chip companies such as Unilever, IAG and Whitbread replaced it as broker, as senior bankers quit for rivals.
But four years on it looks well positioned for the next upturn. Rivals will look to capitalise on any fallout from the integration but in private they agree that Deutsche has made the right acquisition to revive its UK fortunes. Too many banking mergers have failed because they were executed in haste at the top of the cycle. But as well as being a good fit, the acquisition by Deutsche of Numis looks to be perfectly timed.