Carlton Nelson and Luke Spells believe they have an offer any UK company with a market capitalisation of between £400mn and £5bn will find hard to refuse: Investec claims to provide the bespoke advice a client can expect from a boutique, combined with the balance sheet prowess of a bulge bracket.
Last November the Anglo-South African lender announced a strategic shake-up of its global mid-market strategy to expand corporate broking alongside investment and private banking in its core markets of the UK and South Africa.
Nelson and Spells, who are co-heads for UK investment banking and corporate broking, are responsible for delivering this in London. Their team has been restructured and currently stands at 55, consisting of corporate brokers, equity capital market bankers and mergers and acquisitions advisers.
Filling the mid-market vacuum
“There is a bit of a vacuum [in terms of banking coverage]; we want to serve mid-cap companies who are not looked after from both an advisory and broking perspective by either the small broker-only firms or the larger bulge brackets,” says Spells.
“We want to be the go-to house for mid-cap corporates, including those at the lower end of the FTSE 100.”
As part of the strategy announced in November, by the end of 2030 the bank aims to provide relationship banking to 1,000 mid-market businesses.
To achieve this goal, Investec has gone on a hiring spree and recruited from rival bulge brackets, which is how Spells joined in 2024 from Citigroup where he worked for 20 years.
Aside from putting money into getting the best talent, Investec has some inherent advantages over its peers: it has scale with 8,000 staff, a market cap of £3.6bn and a formidable roster of investment bankers. Moreover its full-service proposition can serve client needs under one roof.
“We’re seeing that our more integrated approach is essential as it ensures clients receive the best advice from both an M&A and corporate broking perspective,” says Spells.
“Instead of having to go to separate institutions for advice, you just go to one which has a joined-up offering, and we think this differentiates us.”
Spells also argues that Investec can offer mid-cap companies more attention compared to the big bulge brackets, given it is the bank’s core offering.
He points out that the major Wall Street banks will say they can advise UK public companies of this size.
“But we know that when push comes to shove, they’re understandably going to spend their time and resources where they are best positioned to make money, which is focused on larger clients, often with a lending lens,” he continues.
This revolves around balance sheet activities which drive a lot of their revenue flow from both an M&A and a transaction perspective, he observes.
By contrast, Investec is focused on this client segment and is prepared to use its balance sheet if necessary.
“We are also very happy to deploy our balance sheet for our corporate clients, and have frankly done it on the majority of our ECM transactions,” says Nelson. “We see this as a real differentiator in the mid-cap space.”
“This is more than a soft underwriting position. We are putting the bank’s capital at risk, and for us to be able to give our clients certainty of funds to support an acquisition by underwriting a possible equity issuance that they want to undertake is an exciting place to be.”
In March, Investec did use its balance sheet for Rosebank Industries where it helped the company with a £1.9bn equity raise to fund two US-based acquisitions totalling $3.05bn.
It also continues to develop the capabilities and teams centred on its electronic trading platform ZebrA-X. In February, it hired veteran Vinesh Chhaya as electronic equities sales trader to support it.
And Investec is boosting its equities research offering by hiring top-rated analysts for the nine sectors it covers. The five top sectors by the number of analysts, clients and revenues are the industrials, support services, financial institutions and tech sectors, and then the retail, consumer and leisure industries, which are bucketed into one category. The four remaining areas are media, healthcare, construction and building trusts, and investment trusts.
“We are looking to give our clients good market intelligence and do not rule out adding further research sectors if warranted,” Nelson says.
Deals in the eye of the storm
Bankers cannot ignore the global market turmoil caused by the war the US and Israel have waged against Iran.
“There are some clients who are having a tough time,” Nelson says.
“But there are companies [among Investec’s more than 100 UK clients] who are not as affected where there are opportunities.”
Nelson hopes that UK capital markets do not get into a situation akin to the first year of the Covid pandemic where Investec had to do 30 “reactive” fund raisings to help clients get cash to just survive.
“You can still raise money in the UK if you have the right track record, management board, pricing and investors, but new [initial public offerings] have been pushed out due to the Middle East conflict,” he continues.
Spells explains that another factor weighing on technology, media and telecommunications transactions is the AI threat, which is impacting valuation levels, particularly with software companies.
“From a market sentiment perspective and with my M&A hat on, the cost of capital has gone up and AI impact on earnings has become a key question for investment committees and boards alike,” he says.
However, neither the conflict nor the AI challenge change what Investec is doing with clients or its strategy.
The Rosebank Industries transaction occurred a few days after the Iran war started. And a week later it also helped film production company Videndum raise £85mn to fully recapitalise the firm.
“These transactions help position us for future IPOs when the conflict eases,” Spells says.
The ‘joined-up’ advantage
The fact Investec has a full suite of capabilities but is not a huge investment bank means it can sit bankers, analysts and equity sales team members in the same room with prospective clients without breaching regulations.
“If I were at a larger competitor, it is unlikely I would be able to sit in the same room with a research analyst for example, and the fact I can do it here at Investec because we do not sit under the same regulatory nexus is incredibly powerful,” says Spells.
“Often you have a corporate broker relationship with a client in the UK market [in the context of a bulge bracket] and a transaction is being considered, and suddenly an M&A adviser gets wheeled in to meet the chief executive.
“With the best will in the world that person will never be able to build trust — the Investec model is an integrated advisory and broking approach, so the clients are familiar with the full team from the outset.”
This makes Investec’s pitch more powerful and efficient in the mid-cap space.
It also makes the investment banking job more appealing to Nelson and Spells as they have better-informed conversations with clients.
“Our job for clients is to take a view, be very clear and give advice,” Spells says.
This article has been amended since publication to correct the target client size and Nelson’s and Spells’ job titles