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Cenkos’s Durkin bows out for good amid changing landscape

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Jim Durkin will next month leave the City for the second time. After trying to retire three years ago, he made a surprise comeback as chief executive at Cenkos Securities during a period of turmoil for the London broker. But this time, he said, his departure would be final.

The Croxteth-born Liverpudlian has spent 40 years in the City’s clubby small-cap broking industry. He has seen it evolve from bowler hats and paper-based trading when he began as a trainee analyst at stockbroker Simon & Coates to a sector now grappling with an uncertain future. Tighter regulations and the growing financial clout of large US investment banking rivals are reshaping its competitive landscape.

“I came back to calm things down,” Durkin said in an interview. “I am now 61 and have been at it since I was 21. We are still waiting for regulatory approval [for my replacement] and then I’ll head off into the sunset.”

Durkin is confident that Cenkos is now in a position to prosper. Despite London’s stock market underperforming its booming US counterparts and a lack of big tech stocks, brokers have profited from equity raising activity as companies shored up their balance sheets during the pandemic. There has also been a resurgence in initial public offering activity. 

Durkin expects the UK to follow the US with more special purpose acquisition company transactions as investors seek to build “war chests” to buy companies with balance sheets weakened by the pandemic. 

Rules governing the stock market should be eased to allow more of these sorts of deals, he added, pointing to a government review of listings that is due to report in coming weeks.

Durkin still owns a 9 per cent stake in Cenkos. He was a founding shareholder and then chief executive of the brokerage between 2011 and 2017.

During this period, and in his years before at rival Collins Stewart, he proved a stalwart adviser to small companies, helping raise more than £21bn in equity at Cenkos.

There were bumps along the way. In 2016, Cenkos was fined £530,500 by the UK’s financial watchdog over failings relating to its work for Quindell, the scandal-hit white-label company.


9%


Founding shareholder Jim Durkin’s current stake in Cenkos Securities

Durkin describes the broking industry as “putting ideas with capital”, saying that the equity markets have been proven to be the best place for small businesses to find finance.

But many in his network have now retired, according to one investor who has worked with Durkin at Collins Stewart and Cenkos.

“He is a good institutional salesman but a lot of his clients have now retired and running a business involves an entirely different skill set,” the person added.

Durkin agrees that the City has “changed dramatically” in the decade since the 2008 financial crisis. Not all has been for the good — he is concerned about how the introduction of Mifid II regulations in 2018 has hit independent research.

These rules have also damaged the broking industry, forcing firms to charge separately for investment research, rather than bundled with trading, which throttled a lucrative revenue stream.

Against this challenging backdrop, Cenkos and its British broker peers have also been fighting against bigger US investment banks for positions on IPO advisory lists.

Durkin is critical of the role sometimes played by these larger rivals. “When I see large deals being done by seven banks, I ask who is taking responsibility? Who is caring about the price at which the deal is done? [But] you don’t get sacked for appointing Goldman Sachs.”

Durkin regrets not being able to win mandates for Cenkos on more of the bigger ticket IPOs, although it enjoyed a purple patch of larger flotations during the past decade. 

Cenkos worked with Bob Mackenzie, executive chairman of AA, on the flotation of the group in 2014. The IPO has since been under scrutiny for leaving the company saddled with almost £3bn of debt, leading to the buyout by private equity this year.

Durkin does not regret the work on the AA float, saying that at the time it was a good prospect. “It was carrying a level of gearing but also a very reliable source of free cash flow.”

The AA was also one of a number of IPOs where Cenkos worked with Neil Woodford, who left Invesco in the same year to set up his own investment firm that invested in the breakdown recovery group’s flotation. Woodford Investment Management imploded in 2019 while still holding assets worth £3.7bn on behalf of more than 300,000 investors.

Woodford was seen as close to Cenkos given his longstanding relationship with Paul Hodges, a founder shareholder of the broker and head of its equity capital markets team. Cenkos brought to market several Woodford-backed groups, including biotech firms Verseon and Abzena. 

Woodford also invested in Eddie Stobart Logistics, the transport group that Cenkos helped float before Durkin took his first leave as chief executive. Eddie Stobart is now, too, in the hands of private equity after an equally debt-laden stint on the public market.

Durkin said that Woodford, who is now planning a comeback, was “an important client but never a massive part of the business”, and only ever accounted for a “low single-digit” amount of the money Cenkos raised every year during that period.

He added: “Neil was supportive of some of our deals but no more than any other broker. He had a lot of money and did a lot of deals.”

Durkin started in the City in 1981, and has since “seen several crashes, several asset bubbles”. Global equity markets are booming right now. There are still bargains among listed companies in the UK, he added, but investors need to be selective. 

His return to Cenkos in 2018 followed a boardroom shake-up and a sharp fall in profits. Latest figures for the six months to June 30 show that Cenkos recorded a profit of £750,000, up from a loss of £200,000 in the same period the previous year. It had £22.4m in cash, up from £14.7m.

Cenkos, said Durkin, was looking cheap, trading at a market capitalisation of just £34m. While he predicts further M&A among rival brokers, he said that Cenkos could stand on its own. “We are very undervalued at the moment. The market is not assigning any real value to us — I think that’s wrong.”



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Instacart valued at $39bn in funding round ahead of IPO

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Grocery delivery app Instacart has raised $265m from its existing investors, doubling the company’s valuation following the pandemic boom in demand.

Instacart, the US market leader in the grocery app sector, said the round valued the company at $39bn, up from $17.8bn at the time of its previous fundraise, which closed in November last year.

The company said it intended to use the money to increase its corporate headcount by about 50 per cent this year, a hiring spree that would be spread across the business.

The cash injection comes as the company lays the groundwork for a long-anticipated initial public offering. In January, it announced it had hired Goldman Sachs banker Nick Giovanni as its new chief financial officer. Giovanni had previously been involved in IPOs from Airbnb and Twitter.

“This past year ushered in a new normal, changing the way people shop for groceries and goods,” Giovanni said in a statement announcing the latest round.

“While grocery is the world’s largest retail category, with annual spend of $1.3tn in North America alone, it’s still in the early stages of its digital transformation.”

The company declined to comment on its timetable for going public.

Last week, Instacart added its first independent board members — Facebook executive Fidji Simo, and Barry McCarthy, a former finance chief of streaming platforms Spotify and Netflix.

Notably, McCarthy was the architect of Spotify’s 2018 direct listing, a process by which a company goes public without creating any new shares.

Over the past year, Instacart has been a key beneficiary of lockdown conditions, with many physical retailers restricting walk-in access to stores.

To accommodate the demand, Instacart’s gig workforce has swollen to more than 500,000 across the country. Over the course of 2020, the company said it added more than 200 retailers and 15,000 additional locations to its app.

However, the company faces growing competition from other delivery apps — such as Uber — and other online grocery offerings from retailers such as Walmart and Amazon.

And, as pandemic conditions subside, interest in online grocery shopping may tail off, suggested Neil Saunders, a GlobalData analyst. He also warned that Instacart is at risk of being forced out by grocery stores once they have their own ecommerce strategies more firmly in place.

“Paradoxically, the drive online has actually made retailers a lot more interested in investing in their own systems,” Saunders said. “If retailers decide to go it alone, it leaves Instacart out in the cold.”

The company said it would use the latest funding to increase its investment in its fledgling advertising business, as well as Instacart Enterprise, its “white label” service for companies that want to use Instacart’s logistics with their own branding.

The round was led by Andreessen Horowitz, Sequoia Capital, D1 Capital, Fidelity, and T Rowe Price.



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UK listing rules set for overhaul in dash to catch Spacs wave

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A Treasury-backed review of the City has called for an overhaul of company listing rules so London can better compete against rivals in New York and Europe and grab a share of the booming market for special purchase acquisition vehicles.

The review, to be published on Wednesday, also proposes allowing dual-class shares to give founders greater control of their businesses and attract a wave of tech companies to the London market.

The City’s attractiveness has stumbled in recent years as the US and Hong Kong have swept up the majority of in-demand tech listings. New York’s markets have been further swelled this year by a surge of so-called Spacs, which raise money from investors and list on a stock market, then look for an acquisition target to take public. Britain’s edge also has been eroded by a loss of trading businesses to European rivals since Brexit.

Rishi Sunak, chancellor, who commissioned the independent report, said the government was determined to enhance the UK’s reputation after leaving the EU, “making sure we continue to lead the world in providing open, dynamic capital markets for existing and innovative companies alike”.

The review, which was carried out by Lord Jonathan Hill, former EU financial services commissioner, has recommended a wide range of reforms to loosen rules that have tightly governed listings in the UK.

Lord Hill has recommended lowering the limit on the free float of shares in public hands to 15 per cent — meaning founders need to sell fewer shares to list — and wants to “empower retail investors” by helping them participate in capital raisings. 

He has also proposed a “complete rethink” of company prospectuses to cut regulation and encourage capital raising, and suggested rebranding the LSE’s standard listing segment to increase its appeal. The chancellor should also produce an annual “State of the City” report.

The government said it would examine the recommendations — many of which require consultations by the Financial Conduct Authority.

Lord Hill also recommended that the FCA be charged with maintaining the UK’s attractiveness as a place to do business as a regulatory objective. 

The FCA said it aimed to publish a consultation paper by the summer, with new rules expected by late 2021. 

Lord Hill said the proposals were designed to “encourage investment in UK businesses [and] support the development of innovative growth sectors such as tech and life sciences”.

He said the UK should use its post-Brexit ability to set its own rules “to move faster, more flexibly and in a more targeted way”, in particular for growth sectors such as fintech and green finance.

However, the recommendations will cause concern among some institutional investors which have argued that loosening rules around dual-class shares, for example, will risk lowering corporate governance standards. 

The review said London needed to maintain high standards of governance, with various ways recommended to mitigate risk. On dual shares, for example, it recommended safeguards such as a five-year limit.

Amid fears that the government could go too far with a drive for deregulation, Lord Hill said his proposals were “not about opening a gap between us and other global centres by proposing radical new departures to try to seize a competitive advantage . . . they are about closing a gap which has already opened up”.

Other recommendations include making it easier for companies to provide forward-looking guidance when raising capital by amending the liability regime, and improving the efficiency of the listing process. 

The inclusion of a recommendation to help Spacs list in London by no longer suspending shares after a target is picked will be welcomed by many investors.

However, the rapid growth of such vehicles loaded with billions of dollars in speculative cash has also raised concerns about a bubble forming in the market.

Lord Hill said there was a risk that the UK was losing out on “homegrown and strategically significant companies coming to market in London” from overseas Spacs.

The UK has lagged behind New York and Hong Kong in attracting the types of companies from sectors, such as technology and life sciences, that dominate modern economies and attract investors seeking growth stocks. 

London accounted for only 5 per cent of IPOs globally over the past five years, while the number of listed companies in the UK has fallen by about 40 per cent since 2008. The review also pointed out the most significant companies listed in London were either financial or representative of the “old economy” rather than the “companies of the future”. 

Lord Hill referred to the flow of post-Brexit business to Amsterdam to make the point that the UK faced “stiff competition as a financial centre not just from the US and Asia, but from elsewhere in Europe”.

The steps represent a win for the London Stock Exchange Group, whose chief executive David Schwimmer has called for a more competitive listing regime. He said it was possible to strike a balance between being competitive and maintaining high corporate governance standards.



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Quorn owner Monde Nissin plans record Manila debut share offer

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The Philippines’ top instant noodle producer and owner of UK meat substitute maker Quorn plans to raise as much as $1.5bn from what would be a record initial public offering in Manila.

Monde Nissin, which produces Lucky Me! instant noodles and SkyFlakes crackers, said on Thursday in an IPO prospectus that it would sell 3.6bn shares at up to 17.50 pesos each to raise a total of up to 63bn pesos ($1.3bn).

The listing could raise as much as $1.5bn if banks on the deal exercise an option to sell 540m additional shares.

At $1.3bn, the IPO would already be the largest by a Philippine company as well as a record debut share offer in Manila.

Monde Nissin said the funds raised would be used to boost production at its flagship noodle brand in the Philippines and to increase capacity at Quorn, which Mondo Nissin acquired in 2015 for £550m.

Quorn has enjoyed strong demand in recent years, bolstered by high-profile domestic hits including a “vegan-friendly” sausage roll sold at bakery chain Greggs. Quorn has also partnered with Liverpool Football Club to offer meat-free meals on match days.

But it has struggled to turn out enough of its fungus-based meat substitute to move substantially beyond its retail customer base, even as competitors such as Beyond Meat have clinched deals with chains including McDonald’s.

“They just don’t have enough supply; in the US [in particular] that’s really held them back,” said one banker on the deal, pointing to the limited rollout of a Quorn-based vegan burger known as “The Impostor” through a partnership with KFC.

The banker said Quorn was “going to attack the US much more aggressively” once it boosted capacity. Assuming sufficient supply, there was a long list of fast food clients who would “adopt Quorn because it’s competitive on the chicken side”, the banker added.

The listing, which is expected to price in April, would be the latest big offering in what bankers say is on pace to be one of the strongest years yet for IPOs in south-east Asia — one of the first regions outside China to be hit by the Covid-19 pandemic, and which is expected to be among the first to emerge from it.

ThaiBev, the drinks group, is poised to list its brewery business in Singapore in a deal expected to raise about $2bn and potentially value the unit at up to $10bn, people familiar with the matter told the Financial Times in January.

The Monde Nissin IPO is a rarity for the Philippines in that the entirety of the base offering will be new shares, rather than being sold off by existing shareholders.

Pre-IPO stakeholders include Betty Ang, the company’s president, and the family of her Indonesian husband — the son of Hidayat Darmono, who founded Indonesia’s dominant biscuit maker Khong Guan.

Both Ang and her extended family keep a notoriously low profile. One banker on the deal described Ang and her relatives as “very, very private”.

Bookrunners on the Monde Nissin IPO include UBS, Citigroup and Credit Suisse.



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