Stifel Financial Corp. has acquired Stone & Youngberg LLC, bringing together its municipal finance and fixed-income securities team with Stifel’s public finance, institutional sales and trading, and bond underwriting team.

The combined firms will be led by Ronald Kruszewski, president and chief executive officer of St. Louis-based Stifel. Kenneth Williams, currently president and CEO of San Francisco-based Stone & Youngberg, will run the municipal finance business.

“Our municipal finance business is about the same size and highly complementary,” Kruszewski said. “They don’t overlap and it gives us scale. We are two very capable firms from different markets coming together. What doesn’t make sense about it?”

Other changes in leadership were not disclosed. S&Y’s public finance team will be referred to as the Stone & Youngberg division of Stifel Nicolaus after the acquisition.

“Stifel’s platform strengthens the capabilities of all of our businesses, which will benefit our client base,” Williams said. “In Stifel, we found a highly complementary partner.”

On the banking side, the dynamics in the market and the capital of Stifel was especially appealing to Stone & Youngberg. Williams said his firm has about $25 million in capital and a balance sheet of about $100 million, while Stifel has a capital base of about a $1.3 billion and a balance sheet of over $4 billion, which will bring S&Y to a new level.

“There are certain types of issuer clients that we have been trying to gain business with and this puts us at a different level,” Williams said. “So we look at this acquisition as it strengthens everything.”

He added that the firm has been approached by numerous firms over the years, but Kruszewski was “the first CEO that had a true appreciation for all aspects of our business.”

Last year, Stifel underwrote $5.35 billion in 398 deals, putting it in 13th place nationally. Stone & Youngberg underwrote $4.26 billion in 215 issues, putting it in 17th place, according to Thomson Reuters. So far this year, Stifel has underwritten $1.33 billion in 134 deals, ranking it 18th as a senior underwriter and Stone & Youngberg has been book-runner on $2.22 billion in 130 deals, putting it in 12th place.

Analysts at Goldman, Sachs & Co. said the acquisition by Stifel will enhance its municipal capabilities. In acquiring Stone & Youngberg, “Stifel gets an additional 30 advisers, strengthens its California presence, and solidifies its coast-to-coast underwriting-distribution model for muni issuance,” Goldman’s Daniel Harris wrote.

“Over the past five years, Stone & Youngberg has underwritten over $20 billion in securities across 927 separate issues,” he said. “Over the past five years, it has been the leading California and Arizona underwriter of municipal bonds. In many cases, Piper Jaffray, Citigroup, and Bank of America Merrill Lynch have been the key competitors.”

Harris noted that S&Y’s sales and trading group largely focuses on tax-exempt and taxable security trading, “which fits well with Stifel’s fixed-income strategy.”

The firm has made six acquisitions since 2005. Harris said the “aggressive Stifel management team likely remains engaged in discussions on a number of transactions which help extend and broaden the Stifel strategy.”

Williams said Stone & Youngberg has been affected by low new-issue volume. “Volume in California is off significantly and the state hasn’t come to market this year,” he said. “Local agencies had a fair amount of issuance in the early part of the year but that has slowed down. The school business has remained pretty strong but seasonally it slows down this time of the year.”

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