Evolution’s turn in the bid spotlight

 
David Hellier
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Evolution chief executive Alex Snow, a former rugby player for Harlequins, is said to have been looking less than enthusiastic about things recently.

Like others in the small cap market in the City he has been bemoaning a lack of corporate finance activity, including a dearth of share offerings (the IPO of Nat Rothschild’s Vallares, which Evolution advised on very profitably, notwithstanding) and low trading volumes.

News that Evolution is the target of a bid approach that could value the broker and asset manager at up to £200m, however, is bound to focus the mind and there was speculation yesterday that Snow, who is on holiday, would make a rapid return to attend to discussions.

How serious the approach is difficult to fathom at this stage. The identity of the bidder remains a mystery too, although several names, including Royal Bank of Canada, have been put forward as potential suitors.

Analysts have been predicting the consolidation of the broking market for months now but little has so far happened, leaving a plethora of groups fighting over a smaller and smaller chunk of business.

Evolution, with its dual strategy of being an asset manager under the William de Broe name, and a broking business that has been pruned back in terms of headcount in recent times, looks a good prospect for somebody. Snow, who is certain to return from holiday, will want to ensure he gets a decent price.

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The profits warning and the subsequent tumble in the share price of recent IPO-er, the jewellery maker Pandora, has renewed the debate about how to shore up confidence in new issues when investors are largely on strike (thankfully, the UK strike isn’t totally solid; witness Panmure Gordon’s float of Escher Group on p15 of today’s paper).

Some, like Bank of America Merrill Lynch, argue that more independent analysts should be brought into the pre-IPO process. Merrill argues that institutional shareholders would like to see research from banks and brokers that are not on the syndicate running the deal.

Although all research is conducted behind so-called Chinese Walls in an investment bank, investors don’t always feel they will get the, how should we put it, full picture.

“Frequently you have meetings with analysts at the same time as the bankers are pitching to be put on the deal,” says Owen Wild from IFR, the industry trade journal. “The analyst will always be aware that what they say will influence getting a place on the mandate.”

There were four analysts publishing research ahead of the flotation, all linked to the book-runners, and all were broadly enthusiastic of the company’s prospects as you would expect.

After the flotation last October there were some analysts who were less than enthusiastic about Pandora’s prospects.

Soren Lontoft from the Danish bank Sydbank looks especially prescient: “We see a real risk that consumers at some point will turn their backs on Pandora’s charm-bracelet concept, which would threaten sales and profits.” Not even he, though, forecast the massive rise in the price of silver that has decimated profits.

The fragile IPO market could have done without Pandora right now.

Allister Heath is away
david.hellier@cityam.com