US Mid-market Equity House: Stifel
Battle with the bulge
Consolidation among bulge-bracket firms and a lull in activity has squeezed mid-market specialists, but with volumes up they are reasserting themselves – and often providing an effective foil as equals to the top tier. For its leadership among mid-market firms and strong momentum in securing bookrunner roles, Stifel is IFR’s US Mid-Market Equity House of the Year.
Consolidation in the wake of the financial crisis helped bulge-bracket firms tighten their grip on the US equity capital market, leaving smaller firms fighting over scraps. But stellar conditions to raise capital in 2013 elevated activity levels of small to large caps and boosted the profile of mid-market firms.
At the vanguard of this resurgence of mid-market firms was Stifel, headquartered in St Louis, Missouri.
An acquisitive streak over recent years has helped it transform from a small regional brokerage into a broader institutional and retail focused firm, in turn assisting it in picking up a greater number of sought-after bookrunner slots on IPOs and follow-on equity offerings.
Mid-market firms tend to be more research-driven in terms of deal origination and focus on deals raising up to US$200m.
In recent years, many of these firms – others in Stifel’s cohort include William Blair and Robert W Baird – had to be content with passive co-manager roles on most ECM deals, but the rise in deal volumes has opened up more senior slots. Stifel secured 58 bookrunner roles in the IFR Awards year, from 34 in the previous period, jumping several places up the league table to 14th position.
That Stifel also bookran deals alongside all of the bulge bracket firms was “clearly a recognition of what we are doing here”, said Craig DeDomenico, a Stifel managing director.
Stifel has been able to steer clear of the client conflicts that have muddied perceptions of the bulge brackets and in some cases act as a check on bulge bracket execution.
Mid-market firms argue their greater focus on long-only clients and fewer obligations to hedge funds mean more stable share registers and back this up with numbers showing less churn in their deals in the aftermarket.
“We are relationship-driven and an independent firm as it relates to that so we have no proprietary trading, no in-house private equity and no prime brokerage,” said Stifel’s co-head of institutional business, Victor Nesi. “It’s all agency-driven business.”
Winning mandates against bulge brackets with large balance sheets at their disposal means a heavier relative investment in research, seen in the firm’s coverage of 1,300 stocks, up from 537 in 2005. Stifel is the largest US equity research provider bar none, at a time when many bulge brackets have downgraded their research capabilities amid regulatory restrictions.
Stifel has been broadening its capabilities through a measured series of acquisitions, including in areas such as fixed income, so that it looks increasingly like a bulge-bracket house.
The firm’s acquisition-led strategy began in late 2005 with the purchase of Legg Mason Capital Markets. Since then Stifel has completed a string of deals, the most relevant to its ECM capabilities being the July 2010 purchase of growth-focused investment bank Thomas Weisel Partners and the February 2013 purchase of FIG-specialist investment bank Keefe Bruyette & Woods.
With Thomas Weisel, Stifel also got a strong San Francisco-based tech banking franchise that has a regular place on the cover on hot tech IPOs, the lifeblood of the US IPO market. Recent work includes bookrunner roles on deals for WageWorks, Channel Advisor and Marin Software. Co-head of ECM, Bill McLeod is based in San Francisco.
On top of Stifel’s 100-strong commission-based institutional sales force, the firm has also built a formidable retail brokerage network of 2,069 brokers, the sixth largest in the US. A strong retail network assists in the distribution of retail-oriented products such as master limited partnerships, business development companies and mortgage REITs.
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