If Stifel Financial Corp., reportedly in negotiations for Barclays Plc's U.S. wealth management unit, can close the deal, it could provide a template for that acquisition-hungry firm to compete for an elite group of advisers who court the wealthiest clients, analysts said Monday.
London-based Barclays could fetch between $150 million and $250 million for its unit, which has struggled with adviser attrition, according to Credit Suisse analysts Christian Bolu and Matt Tate.
But for Stifel, the acquisition offers the possibility to acquire — at a potentially favorable price — a descendent of the legacy wealth management operations owned by Lehman Brothers Holdings Inc., whose 249 advisers focus on the wealthiest clientele.
Reuters reported that Stifel was in “advanced negotiations” to acquire the unit, citing three unnamed sources. Stifel's stock popped 3.4% in trading Monday afternoon.
“Such a deal would be right up [Stifel's] CEO Ron Kruszewski's playbook — buying a troubled franchise from a motivated seller,” the Credit Suisse analysts wrote. "Strategically, the deal would round out Stifel's wealth management offering to include the high net worth segment.”
RISKS
But there are risks. Stifel, based in St. Louis, largely focuses on less wealthy clients. Its advisers manage $89 million, on average, compared with Barclays $189 million, according to Credit Suisse. That means a different set of investment products, and therefore compliance and other challenges.
Stifel may also face morale issues with existing advisers, and they will likely have to pay competitive retention deals to keep Barclays advisers on hand for the coming years, Messrs. Bolu and Tate wrote in a note Monday.
Barclays Wealth ranks 20th by U.S. private-client assets, overseeing $47 billion last year, according to Barron's Penta, a magazine that ranks firms based on an estimate including only client accounts exceeding $5 million. Although the number of advisers was roughly flat, assets dropped an estimated 4% from 2013 despite a bull market in U.S. stocks.
Stifel doesn't make that top-40 list, though, unlike competitors, such as (No. 1), Raymond James Financial (No. 13) and LPL Financial (No. 26).
A spokeswoman for Stifel, Sarah Anderson, did not respond to a request for comment. Mark Lane, a Barclays spokesman, declined to comment.
Barclays bought some Lehman Brothers businesses in North America for an $1.75 billion in a 2008 fire sale amid the investment bank's bankruptcy and the global financial crisis.
Largely through a series of acquisitions — 16 in the past 10 years alone — Mr. Kruszewski has transformed Stifel from a small regional brokerage with $123 million in revenue in 1997 into a full-fledged financial services company that had $2.2 billion in revenue last year.
Its acquisition earlier this year for Sterne Agee adds capability in the independent advisory business as well as $20 billion in assets and 730 advisers to Stifel, which will bring its total adviser workforce to 2,800. Stifel paid $150 million in cash and stock for Sterne Agee.
Stifel has focused on more distressed firms, or at least
those needing more scale to be able to succeed.. Barclays Wealth seems to fit that profile, analysts said.
In 2010, Stifel acquired an investment bank known for its expertise in technology, Thomas Weisel Partners. Three years later, it bought middle-market investment bank Keefe Bruyette & Woods. Both firms were losing money.
STRUCTURE KEY FOR BARCLAYS DEAL
How the Barclays deal would be structured is key. Years after the financial crisis, valuations for wealth managers have trended much higher. Firms have worked hard to create deals that protect them in the event they end up with more liabilities — and fewer top advisers — than they expected, according to Steven J. Insel, an industry specialist at Elkins Kalt Weintraub Reuben Gartside, a Los Angeles law firm.
“Wall Street values assets under management, with annuitized-type advisory fees, as valuable,” he said. “The bigger issue would be obtaining the asset you pay for, and the assets walk on two feet. The customers walk on two feet. The advisers walk on two feet. Meaning they can walk.”
