The acquisition signals Stifel's interest in growing its wealth management business, though future deals depend on what's available — and at what price, according to CEO Ron Kruszewski.
The acquisition of the Sterne Agee Group by Stifel Financial Corp. was classic Ron Kruszewski: find a company in turmoil and buy it on the cheap.
It is a strategy that has served the Stifel chief executive well over the past 18 years. Largely through a series of acquisitions — 16 in the past 10 years alone — the 56-year-old Mr. Kruszewski has transformed 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.
Mr. Kruszewski's deal for Sterne Agee, which was announced in February and is expected to close later this month, signals Stifel's interest in growing its wealth management business. The acquisition will add $20 billion in assets and 730 advisers to Stifel, which will bring its total adviser workforce to 2,800. That pales in comparison to the wirehouses and large independent broker-dealers, but Stifel may not be done making acquisitions.
“In the independent adviser and broker space, we're in it, but we're small,” he said in an interview. “But when I look at the dynamics of what's occurring with the LPLs and the Raymond Jameses of the world, it's obvious it's a growing channel.”
The makeup of Sterne Agee's workforce is especially important to Stifel, because it is picking up about 630 reps in the independent channel. Of its existing 1,943 advisers, only 188 are in the independent model. Adding the Sterne Agee reps will put Stifel is a better position for further expansion in this growing part of the advice business.
Until the Sterne Agee deal, most of Stifel's acquisitions were in areas other than retail brokerage. In fact, of the 16 acquisitions it has inked since 2005, only three have been primarily in the brokerage business. In 2007, it bought Ryan Beck Holdings Inc., a full-service brokerage and investment banking firm. The next year it bought broker-dealer Butler Wick & Co., and in 2009, during the fallout from the financial crisis, Stifel acquired 56 branches from UBS Wealth Management.
STIFEL'S ARCHITECT
The architect of Stifel's growth strategy was the chief financial officer at Robert W. Baird & Co. before joining the firm in 1997 as president and CEO. A former accounting major from Indiana University — he was the first in his family to attend college — Mr. Kruszewski is active in community affairs in Stifel's hometown of St. Louis, often helping to raise funds for local charities.
“Ron is a fun guy but a serious business person,” said Michael Keller, executive director of the Independence Center of St. Louis, which helps adults with mental illness. “I think he's positioned Stifel as a leading business here on the philanthropic front.”
Mr. Kruszewski will not tip his hand about future acquisitions.
“We want to build a premier investment bank and wealth management firm,” he said. “I will see the growth when the next opportunity presents itself. When and where that will come from, I have no idea.”
A lot may depend on what is available — and at what price.
“To do $5 billion in revenue would be easy,” Mr. Kruszewski said. “We would just have to buy everything. But that won't grow the stock.”
The Sterne Agee acquisition is a good example of Mr. Kruszewski's modus operandi. Sterne Agee was under a cloud for most of the past year. Its board last May fired chairman and CEO James Holbrook Jr. for allegedly misusing company assets and spending lavishly on perks. The board took the action after it learned of a federal criminal investigation into possible misconduct by the CEO.
Stifel paid $150 million in cash and stock for Sterne Agee, in a deal that was greeted with enthusiasm on Wall Street. After it was announced, Stifel's stock climbed 7%.
“Stifel has a history of picking up companies when they are near a trough in earnings or when they need to scale up,” said Michael Wong, an analyst with Morningstar Inc.
He pointed to two deals in the wake of the financial crisis. 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.
That strategy has served shareholders well. In the past 10 years, Stifel's share price has increased 295.5%, while Raymond James Financial's shares have increased 182.4% and Morgan Stanley's shares have sunk 35.1%.
“Stifel could continue with its roll-up type of strategy and integrate other regional wealth management firms,” he said.
While Stifel is acquisition-minded, Mr. Wong said Mr. Kruszewski is unlikely to pull the trigger if a deal isn't right. He said Stifel was one of the firms in the running to acquire retail brokerage Morgan Keegan & Co., a firm eventually bought by Raymond James.
“Raymond James won it, but Stifel was in it but walked away,” Mr. Wong said. “The examples of what they have done in M&A and what they have passed on shows Ron is a disciplined and experienced acquirer.”
Mr. Kruszewski clearly leaves the door open for more acquisitions in the future. “Are we going to grow?” he asked. “The answer to that question is, the past is the prologue. Look at what we've done. We've been a growth story for 17 years.”
