Kruszewski: lower-multiple merger won't lift Stifel's 9x multiple

Stifel Financial chairman and CEO Ron Kruszewski told BMO Capital Markets analyst Brennan Hawken on Wednesday's third-quarter earnings call that a merger with a partner carrying lower financial metrics would not lift the stock's multiple, AdvisorHub reported. Stifel's earnings presentation showed the shares trading at nine times earnings per share, against 10.2 for Raymond James and 13 for Morgan Stanley.

Kruszewski said any merger partner would have to match Stifel's margins and growth rate, and questioned whether such a company exists. “Who's growing faster?” he said, pointing to earnings per share up 406% and tangible book value up 154% since the end of 2016. “Do we get a higher multiple even though we combine with someone with lower financial metrics? The answer is no.” A year earlier he had mostly dismissed the idea of a sale, saying there was “no need,” according to AdvisorHub.

For an RIA owner weighing a stock-based offer, the acquirer's own multiple sets the price of the paper. A buyer trading at 13 times earnings can pay more for a target's earnings than one at nine and still call the deal accretive, which suggests Stifel's constraint on a deal is about currency as much as strategy. Kruszewski's test — a combination must leave the firm trading higher rather than lower — is one a seller can run on any consolidator's stock before signing.

Over the past 12 months Stifel added 90 advisors, including 28 experienced advisors who produced $19 million in annual revenue at their previous firms. AdvisorHub reported that the $19 million was down 36% sequentially from the $30 million Stifel recorded in the second quarter. Kruszewski said the firm had reduced the “absolute number” of advisors it recruits while raising trailing-12-month production, which he described as recruiting higher-producing teams. Stifel no longer reports overall advisor headcount; it last had around 2,300 brokers.

Client assets in the wealth unit rose 6% year over year to $576.5 billion, a figure the firm says includes the effect of selling its $10 billion-asset independent brokerage unit. Ameriprise Financial, for comparison, has around 10,000 employee and independent brokers and manages around $1.8 trillion in assets. On the last headcount Stifel published, around 2,300 brokers, its advisor force is a fraction of that.