Panmure Takeover

Diamond in the Rough

A counter-intuitive Panmure Gordon deal could just work out.

Bob Diamond is back in Britain, helping to build a boutique investment bank. Whatever you do, don't call it Barclays 2.0 -- and best not to mention Brexit either.

Diamond's Atlas Merchant Capital and Qatari investment bank QInvest LLC agreed on Friday to take 141-year-old stockbroker Panmure Gordon & Co. private for 15.5 million pounds ($19 million). The hefty 68 percent premium over yesterday's closing price sounds impressive -- until you see the shares were trading at that level as recently as 2015.

Bob Spots A Diamond

Even with a high-premium bid, Panmure Gordon's stock is only back to 2015 levels

Source: Bloomberg

The aim is brave: build a boutique investment bank at a time when brokers' margins are suffering, fund managers are tightening their belts and companies are holding fewer IPOs. And that's not to mention the small issue of Brexit and its impact on business and the U.K. economy.

The idea is that there will be demand for specialized U.K. investment-banking services -- eventually. Bulge-bracket banks are still in cost-cutting and streamlining mode. Panmure could exploit this gap and any disruption Brexit has on the supply of capital available to smaller companies.

After all, investment banking appears to be paying off for the current Barclays CEO, Jes Staley, judging by the lender's latest results.

Still, it's hard to swallow the idea the deal is growth story. Panmure is a venerable brand that has fallen on hard times. Its decision to specialize in certain sectors such as finance or natural resources has helped it stem losses, but the firm is operating in a shrinking market. The number of U.K. IPOs fell by 11 percent in 2016, according to EY.

Clinging On

Panmure has been struggling to generate a profit in recent years

The Panmure deal should have a better chance of creating value than something more straightforward such as a merger with another broker. Europe's Mifid II rules will only keep up the pressure on small-sized brokers. Qatar can provide much-needed capital to expand other revenue streams like debt advisory or prime brokerage.

Just don't expect quick gains or an easy turnaround. The money is there and so is the strategy. What's missing is the perfect Brexit -- and that is by no means assured.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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