Us Brits think of Cazenove as being the epitome of shrewd.
After all, Cazenove partners are/were the masters of corporate broking, the ultimate financial weather-vane for London’s financial community. One-in-three Footsie bosses would/do count the firm’s urbane chairman, David Mayhew, as their closest adviser.
This was the firm that prospered, even as the Cazenove clock appeared to stand still. Hoare Govett, James Capel, Kleinwort Benson, SG Warburg… all the great City names got swept away, or at best subsumed. But not Cazenove.
It did a clever deal with JP Morgan that saved the firm and gave it access to a big American balance sheet, allowing Cazenove to do more deals than before, not fewer — all the while retaining its special British culture.
Now, in line with the call/put arrangements put in place at the birth of the joint venture five years ago, JPM is buying the Cazenove partners out. JPM will pay something approaching £1bn for the privilege: cue lots of stories in the British press about elderly blue-bloods striking gold. Some, like Alan Carruthers, head of equities, might get £6m or more.
You read that correctly. There was no missing zero.
Which begs a question: did the partners sell out for too little?
Answer from New York: yes, hilariously!
JPM people say there will be plenty of detail on the profitability of the JV when the formal deal terms are unveiled — probably on Wednesday or Thursday. And there’s bound to be lots of evenly-handed words about the price being fair in the circumstances. Unless JPM is able to maintain its transaction run-rate at Caz, the deal might look expensive to JPM shareholders, but the bank is nevertheless confident that it can cut costs and grow the business simultaneously.
But the public numbers might not be what they seem. On the advisory side – which produced the bulk of the revenue at JPM Cazenove — the American bank enjoyed a special revenue sharing agreement on each transaction which reflected the fact that it was the one with the big balance sheet. In fact, JPM would sometimes take two-thirds of the fees before the remainder went to the JV, to be split 50/50 thereafter.
So the valuation metrics currently being crunched here are meaningless. Apparently, if one were to look at the price-to-real-earnings multiple on this little takeover, the multiple being paid by JPM falls to less than 10 times year-to-date earnings.
That’s not bad when your own paper is changing hands in NY at 27 times.
But JPM would not want to crow about that. It might come across as un-British and that would never do.
Related links:
Mayhew is the key to keeping Cazenove’s culture safe – Andrew Hill’s Lombard
JPMorgan Cazenove – Lex