Stifel is acquiring City Securities, a major player in Indiana public finance.

CHICAGO – In its thirst for acquisitions, St. Louis-based Stifel Financial Corp. reached into Indiana to scoop up City Financial Corp. in a deal that includes investment banking subsidiary City Securities.

The acquisition, announced Tuesday, should bolster Stifel's already strong public finance foothold in the Midwest and further cement its evolution from a regional heavyweight to a national player in public finance.

Stifel said it expects to close in the first quarter next year. Terms were not disclosed. The deal excludes City's two other subsidiaries – City Securities Insurance LLC and City Real Estate Advisors.

For Stifel, the acquisition adds bulk to its public finance and wealth management businesses.

"We have known the management team at City Financial for a long time and have always been impressed with their leading market position in the public finance and wealth management businesses within the state of Indiana," Stifel's chief executive officer, Ronald J. Kruszewski, said in a statement.

The deal ends City Securities' long run as an independent shop that long resisted other suitors despite industry consolidation. The privately held firm established in 1924 is an Indiana institution.

The "partnership" enhances City's "position in increasingly competitive markets," City Financial's chief executive officer, Mike Bosway, said in the statement, adding that it will "elevate our wealth advisory and public finance platforms."

Stifel had long been rumored as being interested in adding City Securities to its fold and speculation that City was being shopped around was heightened after reports circulated that it hired Piper Jaffray to consider its future options.

City Securities' top managers, financial advisors and bankers are being retained as part of the deal and Bosway said all have signed continuation agreements.

"City Securities has longstanding and deep roots in Indiana with a reputation for providing excellent banking coverage of Indiana communities and smaller firms," said Diana Hamilton, founder of Indiana-based Sycamore Advisors LLC, who has worked with the firm as an advisor and in previous positions with Indiana-based issuers.

With key members of the team staying put, at least for now, Hamilton added: "I would expect that to continue. There's not a lot of overlap and it looks like a good fit."

The firm's municipal team includes about 12 public bankers and 30 or so in the larger institutional group, said a source at City Securities. Some layoffs could occur down the line among the firm's larger 150 member staff once the deal closes due to overlap in some areas like clearing.

STIFEL

The acquisition is the latest in a series that has helped Stifel evolve from a major regional financial services firm to a national presence in municipals and wealth management.

Stifel was a perennial 10th, 11th, or 12th place finisher in national senior manager rankings from 2006 to 2013. It crept up to 9th place in 2014 and rose to 7th place in 2015. To date in 2016, it ranks 7th, according to Thomson Reuters.

Last year it completed its acquisition of Sterne Agee Group Inc. and Barclays Wealth and Investment Management Americas, part of a strategy to expand its fixed income business by broadening its institutional platform, building up its banking team, and reaching further into key markets and sectors.

"The Stifel story has changed dramatically in the last five to six years," Ken Williams, executive vice president of the Stifel, Nicolaus & Co. broker dealer division and director of its municipal finance group, told The Bond Buyer in an interview last year.

At the time, the now 125-year-old firm said its public finance staff stood at about 170. The acquisition trail dates back to 2000.

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. 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 acquired California mainstay Stone & Youngberg.

In 2012, it purchased Miller Buckfire. In 2013, it merged with Keefe, Bruyette & Woods. In 2014, Stifel acquired the Los Angeles-based De La Rosa & Co., and also picked up a bond-trading business in 2013 from Knight Capital Group Inc.

The acquisition announcement came after the disclosure late last week that Stifel, Nicolaus & Co. had preliminarily agreed to pay a penalty and disgorge ill-gotten gains to settle SEC charges that it misled five Wisconsin school districts, which ultimately lost $200 million from investments that failed during the financial crisis. A trial in the case was slated to begin Monday.

CITY

City was established in 1924 and in addition to its long time grip on Indiana based public finance business it has 40 private client advisors in eight offices across the state.

Local publications reported late last year that the firm had hired Piper Jaffray to help it consider it options. Much of the sale talk was fueled by the death in May 2015 of its 95-year-old vice chairman, Danny Danielson. His brother-in-law is the firm's chairman's John Peterson, who is the son of the firm's founder J. Dwight Peterson.

The two families hold most of the firm's stock, according to a story published in the Indianapolis Business Journal. It was not immediately clear whether Stifel would drop the City name. Sources said they expected that to occur given the history of other Stifel acquisitions but it could retain some reference to the City name.

"The industry, and the regulations and the cost burdens and need to have stronger capital and sales" motivated the sale, said a source at City Securities. Bosway has led the broker-dealer since 1999 when James Merten, then president and chief executive officer, stepped into a vice chairman position. Both will remain.

RANKINGS

In the Midwest, Stifel ranked second among senior managers for the first six months of 2016, credited by Thomson Reuters with leading deals valued at $3.3 billion. It finished fourth last year on the Midwest table.

City Securities ranked second in Indiana in the first half, credited with deals valued at $379 million. It ranked first in the state in 2015. Stifel was fourth among Indiana underwriters in the first half of 2016, leading deals valued at $264 million for the first half of the year.

Nationally, Stifel ranked 7th last year among senior managers with 889 deals valued at $17.5 billion. City Securities ranked 35th with 126 deals valued at $1 billion.

Stifel has 7,500 employees and $200 billion in assets under management compared to City Securities with $4 billion in assets under management.

Stifel's lead advisor was its own wholly owned subsidiary, Keefe, Bruyette & Woods, Inc., and it was represented for legal counsel by Bryan Cave. City Financial Corporation was advised by Piper Jaffray & Co. and was represented for legal counsel by Barnes and Thornburg.

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