We have gone from this really difficult year, where we have more or less just made a profit, through a cost-cutting phase and now we have just had an unbelievable Q1
Like many company bosses, Sam Smith headed into lockdown fearing the worst – and she and her finnCap Group PLC (LON:FCAP) management team acted accordingly by taking costs out of the business and battening down the hatches.
What she couldn’t have predicted – indeed what nobody in the Square Mile could have foreseen – is just how resilient international financial markets would subsequently prove themselves to be.
For the AIM-quoted financial services group, this unexpected market resilience has been reflected in a stellar start to the new financial year.
“We’ve now had the strongest quarter we have ever had,” chief executive Smith said, speaking shortly after the release of full-year results.
The market for secondary fundraisings has shot into orbit. The latest data reveal £2.4bn was raised in the first five months of 2020 with £675mln invested in growth companies in both April and May.
And finnCap has been in the thick of it thanks to its focus on the tech and life sciences sectors that have seen significant support during the pandemic.
So, it has raised £12.6mln for Open Orphan, a pharma services company, £7mln for the diagnostics success story Genedrive, £14mln for respiratory drug firm Synairgen and a whopping £48mln for the next-generation oncology specialist Avacta.
“We have gone from this really difficult year, where we have more or less just made a profit, through a cost-cutting phase and now we have just had an unbelievable Q1,” said Smith. “It’s a huge uptick and profitable as we have taken a lot of costs out.”
However, the 12 months to March 31 will not be looked back on so fondly as Brexit and the general election threw the markets into a state of paralysis.
That said, top-line growth was achieved, the number of client retainers rose and, operationally, finnCap made huge progress.
“Last year was a difficult financial year, but it allowed us to move on strategically,” said Smith, pointing out that group has made significant strides integrating the mergers & acquisitions (M&A) advisory firm Cavendish.
Not just that, it prepared the ground for an office move that will bring the two businesses under one roof, hired a debt advisory team and launched more products and services.
“All of our work in the year, even though it doesn’t show in the financials, is starting to come to fruition,” said Smith.
What’s remarkable is just how finnCap has grown since 2008 (a year after the buyout from JM Finn), when it had 40 retained clients with a combined market capitalisation of £200mln. Today it works with 126 businesses worth around £12bn.
It is aiming to be a full-service advisor to the growth sector, and in doing so has broadened out from its offering from traditional investment banking and market making to the aforementioned M&A, bid advisory and debt services.
It has also received its sponsor licence for main market transactions and has become actively involved in helping raise capital for private companies.
“The idea throughout has been to create a financial services group for growth companies that is offering the broadest range of service and is a one-stop-shop for clients. We want to be a trusted advisor working on long-term relationships,” said Smith.
Going forward, finnCap is looking to add to the array resources it can offer clients, and, with an improving share price, it may have some latitude to make acquisitions. Smith said there will be a focus on deals, if and when they present themselves, that add recurring revenue to the mix.
Looking ahead, Smith said she is “very wary that we are not out of this crisis”. That said, she expects any further economic pain to be short-lived.
Cautiously optimistic, the finnCap CEO is predicting the return of the IPO to London after a hiatus of 18 months. Indeed, finnCap was the sole book-runner for the Elixirr float - the first in two months. M&A activity, however, is likely to remain subdued.
So, what about secondary fundraisings, which have driven the business’s performance to date?
“We are starting to see a slight bit of fatigue now. What I think we had was a COVID boom in fundraisings,” Smith said.
“It’s starting to calm down a bit. Share prices started to get a bit toppy and excitable.
“But there are still lots of value plays, lots of tech stocks. We still see there will be a lot of interesting growth in a lot of business models on AIM.”
In other words, watch this space.