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When it agreed to be sold to Stifel last year, KBW was painted as a victim of weak bank M&A and the transformation of investment banking. Things are looking up now as the combined company ranked as the top advisor in four of six U.S. regions at midyear.
September 1 -
Executives of PacWest had become frustrated with the shortcomings of traditional, deposit-heavy banks when seeking M&A targets. They reached instead for the prospect of loan growth provided by commercial financier CapitalSource.
July 23 -
Talmer Bancorp in Troy, Mich., expects to raise $42.5 million in its initial public offering.
February 12 -
There were a lot of deals last month involving larger community banks, and prices rose nearly 60% from a year earlier. The results will only feed more of those kinds of transactions.
February 3 -
The CenterState/First Southern in Florida deal shows how banks have to cut expenses, make acquisitions and then make more cuts to move ahead in the long run.
January 30 -
These deals are hard to put together but are well worth it -- if management teams can get through the problems of working together. Sterne Agee's Michael Barry and Daryle DiLascia explain.
February 14
Banks are looking for scale, and their advisors are, too.
Early signs show that Stifel Financial (SF) has
The company's market share in the Keefe Regional Bank Index rose to 4.4% of volume last year, compared to 3.4% a year earlier, according to Bloomberg. The firm was involved in 60 financial services equity offerings, up from 43 in 2012.
In term of bank mergers, the company tied with Sandler O'Neill for handing the most deals, with 46 each, according to SNL.
In an interview, Thomas Michaud, KBW's chief executive, says investors should expect more benefits of the merger to manifest this year.
"We spent the first third of 2013 on integration," Michaud says. "Now it is really going to be 100% focused on our clients and the industry. That is exciting."
In a sweeping interview, Michaud reflects on the company's performance, competition and his expectations for mergers and initial public offerings. The following is an edited version of the interview.
KBW has been a part of Stifel for a year. How are things?
THOMAS MICHAUD: When we come to work every day, our main goal is to give great advice to our clients and offer great services, but you have to have a scorecard.
Whether you're ahead or behind by a few deals, that is not a perfect measurement as to whether or not you did a great job for your client. Sometimes your best advice to your client is not to do this deal.
Competitors say your place in the league tables is because of business already in the works and that it is likely too early for KBW/Stifel to declare success.
The business doesn't work that way. A lot of our assignments in 2013 and now in 2014 were things that our clients decided to do well after our firm had announced and closed the merger.
As time goes by and we continue to have the leading market share, that argument is going to go away. Look at some of the recent deals that have gotten done. Look at the
How do you make sure you keep your people once things like non-competes expire?
I've worked at KBW for 28 years, so I don't bounce around. If you look at my senior colleagues, they don't bounce around a lot either.
I'm not managing KBW within Stifel around the barriers of non-competes. You can't manage purely through defense. We are focused on being the best company in our space. It is all about the offense.
You know what it feels like to be acquired. Has that changed the way you advise boards as they consider selling?
We've advised on thousands of acquisitions over the years, and now actually have done one. I think it makes us better. I know it has made me a better advisor. I think more about the cultural fit now. KBW and Stifel have come together nicely and that re-emphasized the importance of communication internally. Good communication allows everyone to come together faster.
Switching to M&A, when will larger banks those with $20 billion to $50 billion in assets start acquiring?
An acquisitive bank might be able to do one or two mergers a year. Buyers are going to be very careful about where they play their cards in terms of regulatory approval. We expect they are going to continue to move cautiously. For that reason, I don't think you're going to see a big increase in big banks buying, but I do expect it to pick up.
Instead, we've returned to the 1980s and are seeing the
PacWest Bancorp (PACW) has a great track record of being an acquirer and they
What's the market going to be like for IPOs this year?
This is going to be the year of the bank IPO. Small- and mid-cap banks at year-end had pretty much recaptured all of their price-to-earnings from before the crisis. It has sold off some so far this year. If a smaller bank is looking to raise capital, the public markets are a really good alternative right now and a very shareholder friendly way to do it. The next 12 to 24 months are going to be a fertile market for bank IPOs.
Are investors interested?
There is an increasing willingness from investors to look at small- and mid-cap banks. The Keefe Regional Bank Index was up 42% last year. It was the biggest one-year advance ever. The stocks are trading in the low-to-mid teens P/E ratio. That's a good peer group for IPOs.
It also goes back to the economy getting better and the prospect for higher interest rates not immediately, but maybe in 2015.
M&A in 2013 was stoked by deals where the buyers' stocks rose once an acquisition was announced. Is there room for those stocks to go up higher?
As long as buyers have discipline, there is more run way for it. These are well-designed deals that benefit both sets of shareholders. That said, I'm sure there will be a deal or two that comes along where they will push the boundaries and you'll see it play out in the share price.
Many private-equity-backed deals that happened during the crisis will hit their fifth anniversary this year. What do you see happening this year at those companies?
You could see buyers, sellers and offerings. In a matter of a few weeks, we participated in transactions all around these platform companies. We were the advisor to First Southern Bancorp (FSOF), which
Anything else to add?
Over the next 36 months, it is going to be very interesting to see what happens to the universal banks. These new capital rules will require the biggest banks to have more capital than the smaller banks. For most of my career, the biggest banks were allowed to run more levered operations.
Look at the profitability of the biggest banks, their P/E multiples, their growth in earnings per share organically there is a good chance that these regional champions are going to be more profitable than the biggest banks and more consistently profitable.
