Zeus Capital’s client Boohoo.com is trading up around 250 per cent since its £300m initial public offering in 2014
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UK stockbroker Zeus Capital is facing increased scrutiny after several corporate clients have suffered high-profile controversies in recent months, taking the shine off its rapid rise to prominence.
The Manchester-headquartered challenger broker has soared up the rankings since 2013, propelled by a string of successful deals. Its prize client, online retailer Boohoo.com, is trading up around 250 per cent since its £300m initial public offering in 2014, while shares in kettle safety controls maker Strix Group have risen 37 per cent since August.
Zeus has occupied either the first or second spot in the bookrunner rankings on London’s junior Aim by deal value since 2013, according to data compiled for the Financial Times by Dealogic. It ranked 17 in 2012.
But this year the broker has attracted attention after a number of companies it brought to market have encountered difficulties.
“Zeus are a deal machine,” says an executive at a rival broker, who did not want to be named, noting the high proportion of senior — and well-networked — dealmakers at the firm. “[But] its leadership does have to battle some reputational issues at the moment.”
The broker was launched in 2003 and experienced its first flurry of fundraising activity when its hard-headed founder, Richard Hughes, opened a London office with a new team in 2012 and recruited John Goold, a well-connected founder of broker Arden Partners, as chief executive.
This year, the 70-strong broker has raised £351.2m from Aim flotations, a 14 per cent share of the total deal value across the junior market, coming in second to London-based Cenkos Securities.
“[It was about] knowing the kind of companies that investors are looking for, both growth and yield orientated,” Mr Goold says of the company’s rapid growth.
However, Zeus’s success in raising capital has been tempered by troubles at certain clients.
Blackburn-based Accrol, once touted by Zeus as being “in a sweet spot in its industry”, warned on profits in October and said a health and safety fine would hit its cash position more than initially thought.
“It raises a question about whether [Zeus’s] due diligence process is as detailed as it should be,” one fund manager familiar with the broker says. “We haven’t turned them away completely — we might ask a couple of extra questions though.”
Zeus declines to comment on the matter but says it has “a selective approach to potential IPO candidates” and carries out “extended due diligence” on all clients.
Accrol resumed trading in November, announcing an £18m fundraising, but its share price fell more than 60 per cent.
DX, which Zeus helped float in 2014, recently announced an emergency fundraising plan and a new management team following a profit warning. A probe by London police into the company was dropped but it is facing legal action by drivers over their employment status.
Another client since 2014, home improvement business Entu, suspended trading and went into administration in August, while GYG, a superyacht maintenance company it helped float this July, issued a profit warning a fortnight ago.
This comes as regulators push to tighten rules for small and mid-cap market advisers.
Aim’s critics have welcomed the push to raise standards in a market that has been hurt by numerous scandals at some of its fledgling companies. The LSE has said it is analysing the responses to its discussion paper.
The UK’s broking sector more broadly has struggled with tough market conditions, including a fairly subdued IPO market — linked in part to Brexit-related uncertainty — and forthcoming European regulations that could squeeze revenues.
In the year to the end of March, Zeus’s pre-tax profits fell 67 per cent to £2m, from £6.1m the previous year, according to filings this week with Companies House. The group cited Brexit worries among corporates and did not pay a dividend to directors, while in 2016 it paid out £9.3m.
Mr Hughes has not been a director of Zeus since 2014, but remains a consultant to the business. His wife Clare is the controlling shareholder via a vehicle called Zeus Capital Investment.
Zeus is now seeking to broaden its offering to clients beyond initial fundraising services to a more rounded broking relationship.
This has proven tricky. In late 2015, its bid to buy Novum Securities, in a move into trading and market making, was blocked by the UK regulator when criminal charges of tax fraud were brought against Mr Hughes. Those charges were dismissed in May. The company declines to comment further.
Zeus was granted its agency trading licence in January this year. “[We are] continuing to focus on our areas of expertise and, having added agency trading, to build on our advisory and private equity expertise,” Mr Goold says.