From the May 2009 issue of Research Magazine • Subscribe!

May 1, 2009

Stifel Nicolaus Buys Part of UBS

St. Louis-based Stifel, Nicolaus & company says it has reached a deal with UBS Financial Services to acquire up to 55 branches and 320 financial advisors from the UBS Wealth Management Americas branch network.

The 55 offices are found in 24 states and include FAs with some $15 billion in assets under management. In 2008, these branches generated roughly revenues of $116 million, including about $100 million in compensable FA revenue.

At present, Stifel Nicolaus has 1,368 advisors, including some independent contractors in 203 offices nationwide. Thus, on a pro-forma basis, the broker-dealer could have close to 1,700 advisors, which makes it close to Oppenheimer and RBC Dain Rauscher, according to industry data made public by Stifel and SIFMA.

UBS had a total of about 8,200 advisors before this deal was announced on March 23.



"The addition of these UBS branches represents a unique strategic fit," says Stifel Chairman and CEO Ronald J. Kruszewski. "The addition of this talented group of professionals furthers our efforts to meet our goal of expanding across the country and further build upon Stifel's recent growth achieved through our successful acquisitions and integrations of the Legg Mason Capital Markets Group in 2005, Ryan Beck in 2007 and Butler Wick last year."

"This makes good sense," says Chip Roame, head of the consultancy Tiburon Strategic Advisors in Northern California.

"It looks like UBS is moving to a big-city strategy and abandoning smaller-market branches as a private-bank organization based in major cities worldwide," says Roame.

"This seems to be UBS taking a step toward ultimately merging the private banking and U.S. brokerage businesses by some savvy streamlining," he adds.

And for Stifel, this is also savvy. "They are based in the Midwest with smaller markets and a culture of individual producers," according to Roame.

These UBS branches being sold are "more appropriately aligned with Stifel's target market," he says. "It's a win for both."

Stifel executives say the transaction is structured as an asset purchase for cash at a premium over certain balance sheet items, subject to adjustment. The payments to UBS include:

- An upfront cash payment of up to about $27 million based on the actual number of branches and FAs acquired by Stifel Nicolaus;

- Annual earn-out payments for the two-year period following the closing of the transaction principally based on the performance of the UBS advisors who become Stifel Nicolaus employees; and

- Aggregate payments of up to some $19 million for net fixed assets and employee forgivable loans.

These payments are variable based upon the number of advisors and branches acquired by Stifel Nicolaus, the company says. In addition, Stifel Nicolaus has agreed to acquire other client-related assets and assume certain liabilities, associated with the branches acquired.

The number of employees, branches and assets to be acquired by Stifel is expected to be determined in roughly 35 to 45 business days.

Stifel also says the acquisition should be accretive to earnings in the first year and could be completed during the third quarter of 2009. o

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