Cenkos: A British banking model makes a comeback

The way Cenkos put the AA deal together took many by surprise

A boardroom chat between an Oxbridge-educated dealermaker who grew up on a Liverpool council estate and the former head of a scrap metal firm from Scotland is a scene only imagineable in a City of London boardroom.

But the meeting between Avril Pal­mer-Baunack, former head of Universal Salvage, and Jim Durkin, chief executive of Cenkos Securities, typifies the unique circumstances which underpinned yesterday’s reverse takeover of BCA Marketplace – and the position British outfit Cenkos occupies among the US-dominated investment banking sector in the capital.
The firm’s success marks a stark turnaround from just a few years ago when empire building was the way forward. Giant investment banks with a global reach and the ability to do everything for everyone – they were the future once.
The picture is not so clear-cut. Small groups of well-connected bankers are setting up on their own, old names such as Rothschild are making a comeback, and those universal banks are not winning all the deals.
Partly it is because tough rules and an increased focus on returns are forcing big banks to cut teams.
And partly it is due to the efficiency of a small group of executives with low overheads.
Cenkos wants to lead the charge. Just a couple of years ago it was dismissed by the big boys as an outfit with an unimpressive future.
But the boutique made waves last year with the successful £1.4bn flotation of the AA.
“They were probably the best people to do something that was a bit unusual, with few precedents. They came up with good contacts, they got us in to see the right people – it is the old-fashioned approach, very relationship driven,” said AA’s finance director Martin Clarke, who called Cenkos because he remembered doing a Northumbria Water deal with Durkin a decade ago.
“We spoke to a lot of US investment banks when we were trying to put together the funding package, but none of them came up with the ideas.”
And yesterday, Cenkos announced the £1.2bn acquisition of British Car Auctions by Haversham – a stunning result after the big investment banks had failed to float BCA.
The model is one of pushing personal contacts hard, matching big investors with innovative deals.
In a reminder of this shift back to an older, more personal way of working, Cenkos operates out of Cazenove’s old office.
But there are some downsides to this model. It is so strongly based on personal contacts and the long careers of senior bosses that it is hard for junior staff to make any headway.
Salaries are modest, with the bonus from big deals the main incentive to do well.
The so-called “eat what you kill” model certainly rewards success – the banker who brings in the deal gets the lion’s share of the rewards, with others picking up smaller payouts.
Those can still be healthy. After the AA deal, Cenkos gave all staff a £40,000 handout regardless of their role.
But it can also cause tensions, with the firm well known for difficult relations between some top staff.
“It appeals to people with confidence in their own ability to do the deal without the support of a large organisation,” said analyst Mark Thomas from Edison Investment Research.
A senior executive at a rival was more blunt: “Cenkos are pushy,” he said. “They have a strong relationship with the ex-Invesco man [Neil Woodford], which has generated a lot of business for them. But they’re highly profitable and very successful.”
But despite any personal rivalry, the staff is undeniably proud that the hard work has paid off, and that the firm is carving out a strong reputation for innovative deals.
“JP Morgan, UBS, Rothschild, they all tried to get it [BCA] away and they’ve come to Cenkos who have come up with a clever route to inject new capital,” said one source who has worked with Cenkos.
“They punch well above their weight. They’ve got institutional reach and the institutions that invest in their projects are all blue chip.”

CENKOS’ SUCCESSES

■ In 2013, Cenkos made £3.1m in profits from £20m of revenue.
■ The AA deal saw that balloon to £23.5m of profit and £65.2m of revenue.
■ AA deal (2014): £30m fees.
■ BCA deal (2015): £25.5m fees.

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