Cenkos Securities and finnCap Group, the London-listed brokers, are in advanced talks to merge in an all-share deal that will create the City's biggest dedicated investment bank serving small-cap growth companies.

Sky News has learnt that Cenkos and finnCap are close to agreeing a tie-up.

An announcement from both companies is likely as soon as Thursday morning.

If confirmed, it will accelerate the consolidation among London's smaller broking firms during a challenging period for capital markets specialists.

Company flotations have been rare in the City in the last year because of economic and market volatility.

The merger of Cenkos and finnCap will come months after Panmure Gordon, the investment bank owned by a vehicle headed by Bob Diamond, the former Barclays chief, abandoned a bid for finnCap.

The two sides were unable to agree on a price.

City sources said on Wednesday that the deal would see finnCap acquiring Cenkos.

The two companies have virtually identical market capitalisations of £21m and £22m respectively.

Other details of the deal, including the leadership of the combined firm and which brand it would use, were unclear.

Despite their lowly valuations, the deal will be closely watched in the City by both peers and the firms' clients.

A slowdown in corporate activity has driven a hunt for enhanced cost savings among brokers, with the prospects for corporate activity this year dampened by the economic backdrop.

FinnCap has endured a difficult period, parting company with Sam Smith, its chief executive and one of relatively few female City bosses, last summer.

Other broking firms are expected to participate in industry consolidation, including WH Ireland, which is under siege from an activist shareholder.

A finnCap spokesman declined to comment, while Cenkos could not be reached.