SMALL CAP IDEAS: FinnCap and Cenkos merger

The proposed merger of FinnCap and Cenkos is likely to be a sign of a prolonged drought in small cap funding.

The merger, if approved, will create the UK's second-largest small cap broker and come as the sector faces an increasingly difficult environment for capital raising.

Small caps are companies with a market capitalisation of between £5 million and £250 million, and the difficulty to access capital is particularly pronounced for those smaller companies.

FinnCap and Cenkos, both of which are leading advisers to smaller companies, are set to join forces in a move that will create a combined entity with a £75 million market capitalisation.

The merger is in response to the difficult market conditions for smaller companies and follows the news that UK-listed small caps raised just £308.2 million in the first quarter of this year, the lowest amount since the financial crisis.

The new entity, which will be called FinnCap Group plc, will offer a full suite of services to small cap companies, ranging from corporate finance and capital markets advice to research, broking and corporate finance.

The group will have a combined client base of more than 300 companies and a full-service offering to a wide range of sectors.

The merger is a positive move for the sector and could be a sign of a renewed focus on small cap ideas, with the new entity ideally placed to offer advice and capital raising solutions to the sector.

It is hoped that the merger will provide a fillip to small cap companies and enable them to access the capital they need to grow and develop.

The proposed merger is also likely to have a positive impact on the sector as a whole, with increased competition likely to drive down fees and open up the sector to more investors.

The merger is expected to be completed by the end of the year and the new entity should be well-placed to take advantage of any upturn in the market.

For investors, it could be an opportunity to access small cap ideas, with the sector offering a range of potential growth opportunities.