Strong Early Returns from Dealmakers' Deal

Stifel Financial had wanted a bigger piece of the bank M&A pie.

A much, much bigger piece is what it got.

In November, Stifel (SF) announced it would acquire KBW for $575 million. Part of the allure was picking up the dealmaking prowess of the New York-based company's Keefe, Bruyette & Woods unit. The deal closed in February, and by the year's midpoint, the combined firm led the industry in advising on bank deals.

In our semiannual ranking of M&A advisors, based on the disclosed values of deals announced in the first half of 2013, Stifel was the top advisor in four of six U.S. geographic regions, according to data from Dealogic. A year ago, Stifel and KBW led one region apiece.

To borrow the lingo of dealmakers themselves, has the merger resulted in a scenario where one plus one equals three?

They may not be at three just yet, but "together, we are equaling more than two," says Thomas Michaud, who stayed on as CEO of Keefe Bruyette & Woods and joined Stifel's board. He says Stifel had a hand in deals representing 47 percent of total deal values for the first half of 2013. Separately, Stifel and KBW were attached to roughly a quarter of the deal values seen in the first half of 2012, he says.

Michaud, along with Victor Nesi, co-director of the institutional group at Stifel, say the key to the combined firm's early success is the pairing of its comprehension of the market.

"Together, we have a deeper and better knowledge of the industry across the country," Nesi says. "And we're taking the benefits of that scale to advise our clients."

Several of Stifel's competitors in the space say the companies were formidable opponents on their own and saluted their performance on the league tables now. Most, however, say it is too early to determine whether Stifel has achieved lasting dominance.

Right now the company is benefiting from the combination of deals that the two firms individually had in their pipelines, say rivals, none of whom were willing to be named on the record. The real measure of the deal's success will be a year or two from now when contracts expire, they say. At that point, employees who left during the merger perhaps will have landed elsewhere and succeeded in bringing clients with them, while retained employees may have decide to go elsewhere.

Some smaller competitors say they had expected the firm to focus more on larger transactions — those involving banks with $5 billion to $10 billion in assets — and leave the micro space to them. But KBW's role in advising banks like the $221 million-asset Four Corners Community Bank in Farmington,N.M., on its acquisition of an $80 million-asset bank in Colorado, is a sign that the company has other plans.

"We think there are economic benefits to being $5 billion to $10 billion … but that doesn't mean we aren't going to do smaller deals," Michaud says. "We are as active as we've ever been" in advising small community banks.

But the firm's success so far this year has come mainly from larger transactions. Michaud says that as of July, the company has been involved in seven of the 10 largest deals reached year-to-date. "A 70 percent market share is rewarding," he says.

This article is from the upcoming September edition of American Banker Magazine.