Thomas Weisel and Stifel Make a Ton of Sense

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Includes: SF, TWPG
by: 451 Research: Inorganic Growth

By Brenon Daly

As a former national cycling champion, Thomas Weisel undoubtedly knows there are races where you can break away from the pack and stick a winning move all the way to the line. And then there are races where no matter how hard you try to turn the pedals, the peloton just swallows you up and drags you home to an undistinguished placing. If Weisel’s first sale of his investment bank is the former, then the sale of his namesake bank announced Monday is, arguably, the latter.

Back in mid-1997, Weisel sold Montgomery Securities for $1.2bn in cash and stock to NationsBank, which is now known as Bank of America (NYSE:BAC). On Monday, Weisel sold Thomas Weisel Partners (TWPG) for just one-quarter that amount. Stifel Financial (NYSE:SF) will purchase TWP for around $300m in stock. (Shares of Stifel dipped slightly on the announcement, shedding 4%.) The deal is expected to close this quarter.

To be sure, the proposed combination makes a ton of sense. It adds TWP’s investment banking business, with its focus on tech, healthcare and alternative energy, to Stifel, which is known more for its deals involving financial institutions and real estate, among other areas. Furthermore, the combined company would have research coverage on more US public companies than any other Wall Street firm. On paper, TWP brings a focus on the New Economy that Stifel has been missing, even as the St. Louis-based firm gobbled up other parts of the banking business over the past half-decade.

But for TWP and its founder, the sale probably comes up a bit short of what had been imagined when the bank opened its doors in 1999. (Of course, that’s probably true for any venture launched in that era, when all the charts went up and to the right in uninterrupted lines.) More recently, shares of TWP spent much of 2010 trading below book value. Since Wall Street was hardly willing to assign any value to the firm, the sale of TWP at an eye-popping premium of about 70% is probably not a bad exit. Who knows, maybe with the change of jersey, the ultra-competitive Thomas Weisel can get back on the podium.