Stifel will acquire rival brokerage Sterne Agee for $150 million.
The deal, announced by Stifel, should boost the firm's advisor force by one-third to roughly 2,800 advisors. With the addition of Sterne Agee's larger independent advisor force, the acquisition also provides Stifel with a launching pad to grow its business in the independent channel.
Stifel CEO Ronald Kruszewski said in an analyst call that the combination makes sense for multiple reasons. "This investment in the independent advisor business gives Stifel the opportunity to grow this platform. … We think we're going to grow and compete in this channel," one that Stifel has "otherwise ignored."
Sterne Agee is valued at about $150 million, Stifel said. The firm will pay for the acquisition in a combination of common stock, valued at $51.55 per share, and cash, depending on shareholder elections. The cash component could comprise between $66 million and $77 million.
Industry observers have speculated that a Stifel-Sterne Agee merger would allow the firm to more closely resemble rivals like Ameriprise and Raymond James, both of which have independent and employee advisor channels.
"I think we have to use that Raymond James model as a proxy for what is happening here. Stifel has a great opportunity of becoming a runner up to what Raymond James is: Not quite a wirehouse, but bigger than a regional," Alois Pirker, research director at Aite Group, said prior to the announcement of the deal, which is expected to close during the second quarter.
Establishing a bigger footprint in the independent space might allow Stifel to capture more of the growth in that space. According to data from research firm Cerulli Associates, RIAs and dully-registered channels are expected to increase their market share to 28% of total industry asset in 2018 from 20% in 2013.
Stifel, based in St. Louis, currently has about 2,100 advisors and about $186 billion in total client assets. Sterne Agee, based in Birmingham, Ala., has about 730 independent and employee advisors managing more than $20 billion in client assets.
Recently, Stifel has been aggressively trying to expand. Last year the regional firm added about 120 advisors managing $11.2 billion in AUM, according to a firm spokesman. The firm's most recent earnings report indicates Stifel increased the number of its branch locations from 357 at the end of 2013 to 667 at the end of 2014.
Sterne Agee also acts as a clearing firm with more than $27 billion in assets under custody. In acquiring Sterne Agee, Stifel also will gain its fixed income division, which has about 200 employees.
In a statement, CEO Kruszewski said that, overall, the deal "furthers our goal of creating a balanced, well-diversified business mix with wealth management and institutional exposure."
Stifel said that the acquired businesses are expected to generate about $300 to $325 million in annual revenue.
Stifel also reported fourth quarter earnings today, announcing that profits for its wealth management division were up 6.5% year-over-year, rising to $84 million for the quarter from $79 million for the year-ago period.
--With reporting from Maddy Perkins.