The Edinburgh operations of Cenkos Securities, the only institutional stockbroker with a full-service office in Scotland, will be "very important" as the mid-tier broker and its rival finnCap move ahead with a 50-50 all-share merger.

The £43 million deal will create the UK's largest investment bank focused on small-cap growth companies and comes after fellow City broker Panmure Gordon abandoned a bid for finCapp after failing to agree a price. It also comes amid a challenging backdrop for the brokerage industry, with a dearth of deals in the face of slowing corporate activity.

Cenkos, which was involved in the stock market debuts of Scottish firms such as Calnex and Smart Metering Systems, expanded into Scotland in 2008. The Edinburgh operation, headed up by Neil McDonald, moved into new offices in Princes Street last year.

While Cenkos and finnCap highlighted “potentially significant cost synergies” post-merger, Cenkos chief executive Julian Morse said the plan for Scotland is to build up the operation with additional debt, private capital and M&A advisory services.

HeraldScotland: Neil McDonald, head of Cenkos ScotlandNeil McDonald, head of Cenkos Scotland (Image: Cenkos)

Cenkos currently has nine people in Edinburgh looking after 29 clients, including both Scottish firms and energy sector companies from further afield in the UK and abroad. FinnCap has no physical presence north of the Border.

“We expect that the Edinburgh office will be very important to the merged business as we develop our full service offer for Scottish and energy clients," Mr Morse said.

The combined group will retain 210 listed or quoted clients and will employ 230 people, about 100 of which will come from Cenkos. The operation is expected to generate annual revenues of more than £50m and will have more than £20m on its balance sheet.

The business will be led by Mr Morse and his finnCap counterpart John Farrugia who will share the role of chief executive. Cenkos chair Lisa Gordon will chair the combined board, which will be made up of equal numbers of finnCap and Cenkos directors.

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Both companies' shareholders will hold 50 per cent of the equity in the newly-merged company.

“This proactive and mutually-beneficial merger creates a champion for growth and investment companies, both UK-quoted and private entrepreneurial businesses that are the backbone of our economy," Ms Gordon said.

"The two firms’ cultures are very similar, and our client lists and capabilities are complementary."

Cenkos made a loss of £2.2m last year, down from a profit of £3.4m in 2021 as revenues tumbled by 46% amid what it described as a "poor year for UK equities". Mr Morse noted at the time that activity levels on the Alternative Investment Market (AIM) were at their lowest for almost two decades.

FinnCap has experienced similar difficulties, posting a 48% decline in first-half revenues in its latest set of results. Losses for the six months amounted to £2.6m, down from a profit of £6.3m in the same period a year earlier.

READ MORE: Cenkos secures double-digit gains in first half

The merger is to be implemented by means of a court-sanctioned scheme of arrangement and currently has support from 33% of Cenkos’ shareholders and 52% of finnCap’s. The scheme is expected to become effective in the third quarter of this year.

Robert Lister, chairman of finnCap, said he was "excited" by the potential of the combined group. He is due to become senior independent non-executive director of the merged operation.

Mr Morse added: “This merger is a true meeting of minds: the combination of two firms with a shared client-centric culture, which presents the opportunity to create a premium full-service advisory house supporting growth and investment companies and grow our combined business and its revenues.”

His counterpart Mr Farrugia was similarly upbeat: “In Cenkos we have found a partner who shares the same vision, desire and drive to create one of the leading financial services advisory firms focused on the mid-market. With our collective strength in capital markets, M&A, debt advisory and private growth, we believe that we are able to provide an unrivalled level of service to all our current and prospective clients.”