In the Hot Seat by Miles Nolan

Patrick Claridge is the energetic chief executive of Merchant Securities, a City-based broker that is successfully building its franchise.

It’s 9am after the May bank holiday, and chief executive Patrick Claridge has already been in the office for three hours. In a typical day he is often the first in and the last out, but it’s this enthusiasm that is helping to rebuild the fortunes of Merchant Securities (MS).

Claridge left school at 17 and started his career at City broker Scott Goff Hancock & Co, from where he enjoyed stints at UBS and Newton Investment Management.

He helped to set up research-to-seminars firm TIR Securities in the late 1980s before it was sold to US broking giant E*TRADE for $122 million in 1999. After four years with E*TRADE he left to spend 18 months out of the market, during which time he carried out consulting work for Collins Stewart and several AIM companies while also nurturing his golf handicap down to eight.

However, in 2006 he was introduced to entrepreneur Tony Fabrizi, and together they led a team to acquire MS. Though initially joining on a part-time basis to establish the institutional desk, he took over as chief executive in 2008. Claridge confesses that MS has ‘been a challenge’, where everyone ‘rolls up their sleeves’. But from a position of ‘intensive care’ when he joined, the AIM-quoted firm is now in rude health, with no debt and cash of £2.6 million.

Early days
The origins of MS date back to 1987, when it was established to provide brokerage services on an advisory and discretionary basis. Following the acquisition of well-established AIM player John East & Partners in 2007, it then established a corporate department. Last year, all its operations were rebranded to Merchant Securities in a bid to simplify the structure and reduce regulatory costs.

Moreover, the recent move from City Road to much larger office premises on Gresham Street is proof that MS is living up to its strap line of ‘an expanding financial services company’. With 70 employees, there is certainly capacity for growth.

Growth spurt
To boost its scale, Claridge acquired IFA and wealth manager Cavendish Young, and then earlier this year it completed the deal to buy rival GT Independent Financial Advisers. This has helped bring its funds under influence to £485 million from 7,000 clients, and Claridge hopes to take this to £1 billion over the next couple of years.

He says, ‘We plan to convert more advisory funds to discretionary clients,’ the result of which is to bring more sticky income. Indeed, the private client arm is expected to chip in 70 per cent of operating profits in 2012. The Retail Distribution Review (RDR) due in January 2013 is likely to affect wealth managers, with particular pressure on small to medium-sized IFAs. Indeed, the concern is that up to one third of the 10,000 IFAs in the market may leave due to increased regulatory burdens.

Claridge argues that MS has a competitive advantage in the smaller company space and is currently home to 32 corporate clients with an average market value of £20 million, including Altitude and Travelzest.

MS researches technology, cleantech, oil and gas, support services and media/leisure – mining might be next on the list. In institutional broking it is ‘agency only’, with contacts at most major institutions.

MS also acts for eight private companies so bringing further retained income, and is in the process of raising £20 million from the private equity market for two clients. The IPO market has been slow but Claridge remains optimistic for AIM hopeful Music Festivals, the live music business headed by Vince Power.

MS counts leading Polish broker IDMSA as a 15.8 per cent shareholder and Henderson also remains a supportive investor.

When not working he can be found at his 126-acre farm in Ongar, Essex.