New York- The Noble Group, a UK based investment bank, announced the acquisition of the independent research firm Clear Capital, Ltd. yesterday. The deal implies that the environment for independent research firms in the UK may not be altogether favorable, and as such, Integrity believes that this may not be the last acquisition of its kind, especially concerning fundamentally oriented firms, of which there appears to be an oversupply. Investment banks in general are taking a strong interest in alternative research these days, as evidenced by Goldman’s Hudson Street, Merrill’s Open Minds, and Morgan Stanley’s AlphaWise.
Background
Clear Capital’s research, which focuses on UK small and mid cap companies, is fundamentally based incorporating elements of different valuation techniques such as cash flow analysis. Clear Capital’s analysts also conduct the standard primary research associated with most fundamental firms, as they look to gain insight from customers, suppliers and competitors.
The Noble Group’s main business focus has been M&A and the equity capital markets. Their investment banking division supplies services to more than 200 companies and they also act as an adviser, sponsor, and broker to more than 40 companies. Their investment management division concentrates on alternative asset classes in the UK and Europe and covers private equity, venture finance, equity funds, property and infrastructure. They currently also manage eleven funds of between £3 and £100 million. Noble is the exclusive UK member of Global M&A, a partnership of corporate finance houses.
With the acquisition of Clear Capital, the Noble group will have nearly 30 analysts covering 170 UK stocks across all ten sectors. Also of interest to Noble was Clear Capital’s presence in India as they have 18 employees in Mumbai. The merger gives Noble its first presence in India, the importance of which Nick Paulson-Ellis, the founder of Clear Capital, explains by saying, “both [Clear Capital and Noble] have recognized that the UK and India are developing one of the most important bilateral relationships in the global economy”. Paulson-Ellis will become head of equities at Noble.
Implications
In looking at this acquisition one can’t help but wonder about the state of independent research in the UK. Previously we have discussed the impact that CSAs have had on independent research providers and how various aspects of the system have led to difficulties for alternative research in the UK. Nick Paulson-Ellis himself has gone on record as a critic of CSAs, having been an author of the Euro-IRP’s white paper on the topic which highlighted issues independent providers faced such as timeliness of payment. The deal between Clear Capital and the Noble group appears to be good business, yet it also seems to be party motivated by Clear Capital’s frustration with CSAs and a desire to be paid through a trading desk. Clear Capital had previously seemed to take pride in their independence. Their website stated, “Independence for us is more than just a label” but now that they have been absorbed by Noble, the question as to how UK based independent research firms can cope in the new regulatory environment seems apt.
The original article can be found here.