Stifel Financial Corp. reportedly is in talks to buy Sterne Agee Group Inc., continuing an acquisition spree that's vaulted the St. Louis based brokerage and investment banking firm into the top 10 among municipal underwriters.
The companies declined to comment on a Bloomberg report Friday that a deal may be announced within days. The reported transaction would link Stifel, which ranks 7th among municipal bond underwriters this year through Feb. 20, with a Birmingham, Ala.-based firm that ranks 57th over the same period.
Stifel Chief Executive Officer Ron Kruszewski has been capitalizing on acquisition opportunities amid financial market and brokerage industry turmoil since the financial crisis. Obstacles such as decreasing underwriting spreads and thin capital, as well as higher regulatory costs, can be amplified for smaller municipal firms, driving them to seek mergers with bigger players.
"During protracted periods of tight spreads and reduced profit margins, you usually see more consolidations," Richard Ciccarone, president and chief executive officer at independent research and data provider Merritt Research Services, told the Bond Buyer on Friday. He said the expected acquisition would be mutually beneficial. "These are two regional companies, and they probably expect to gain greater economies of scale for their sales and operations activities."
Last year, Stifel acquired the Los Angeles-based public finance investment banking boutique De La Rosa & Co., and also picked up a bond-trading business in 2013 from Knight Capital Group Inc.
Stifel's build-up dates back to at least 2000, when it merged with Hanifen Imhoff. In 2005, it acquired Legg Mason Capital Markets. In 2006, it bought Miller Johnson Steichen Kinnard's private client group.
In 2007, Stifel acquired Ryan Beck and separately purchased First Service Bank. In 2008, it formed Choice Financial Partners and separately acquired 17 offices from Butler Wick. In 2009, Stifel purchased 56 branches from UBS. In 2010, it acquired Thomas Weisel Partners Group, In 2011, it took Stone & Youngberg. In 2012, it purchased Miller Buckfire. In 2013, it merged with Keefe, Bruyette & Woods.
So far this year, Stifel has underwritten 122 issues worth about $2.121 billion, for 4.4% market share, according to Thomson Reuters. For all of 2014, Stifel ranked 10th, having underwritten 650 issues worth around $11.967 billion, and a market share of 3.8%.
Sterne Agee has underwritten seven issues worth about $35.3 million, having a 0.1% market share so far this year. For all of 2014, the firm ranked 59th, having underwritten 27 issues worth around $260.8 million, a market share of 0.1%.
Stifel, established in 1890, provides securities brokerage, investment banking, trading, investment advisory, and related financial services through its wholly owned subsidiaries to individual investors, professional money managers, businesses, and municipalities It offers fixed-income sales and trading, including municipals, as well as public finance banking, and has an asset management arm that offers tax-exempt investment strategies for high net worth individuals, trusts, and foundations.
Sterne Agee's history dates back to 1901 when it was founded by a Birmingham mayor, and now bills itself on its website as "one of the oldest and largest privately owned financial services firms in the nation."
It has over 2,000 financial professionals, maintains custody of nearly $26 billion in client assets, and offers "comprehensive wealth management and investment services to a diverse client base including corporations, municipalities, and individual investors."
Its institutional services division includes fixed-income sales, trading, research, and strategies, as well as public finance, and capital markets. Its private client group and financial services group has more than 700 advisors nationwide.
Sterne Agee more than doubled its credit trading and sales team in less than four years, Bloomberg reported. It promoted Eric Needleman, a New York bond trader, to chairman after ousting and suing its former chairman and longtime CEO, James Holbrook Jr., in May 2014.
Mergers have been in the headlines more frequently over the last year or so in response to more challenging market conditions, including shrinking underwriting fees, and increased competition and regulatory mandates.
In January 2014, Bernard B. Beal shuttered his firm, New York City-based M.R. Beal & Co., after more than a quarter century to join forces with Blaylock Robert Van LLC, a New York-based investment banking and financial services company in an effort to ramp up the combined firms' municipal underwriting operations.
Chip Barnett and Aaron Weitzman contributed to this report
