Birmingham Brokerage Grows Coast to Coast
Birmingham-based investment firm Sterne Agee is on a determined, national acquisition campaign, capitalizing on windfalls of industry consolidation.
Headquartered in Birmingham, Sterne Agee & Leach is the premiere Alabama-based brokerage firm, with a history reaching back more than 100 years. Recently, the company has attracted interest for its acquisitions and strategic alliances that expand its footprint across the nation.
Although the company has grown exponentially over the past few decades—revenues have jumped from $5 million to $350 million in the last 20 years—its leaders plan for continued growth, perhaps doubling the size of their New York office, but they are adamant that Alabama is home for the foreseeable future.
Mergers and acquisitions ranging coast to coast have characterized Sterne Agee’s exponential growth. In December, the firm acquired two California based companies, Nollenberger Capital Partners in San Francisco, which operated three offices and had $1.3 billion in assets under management; and KKS Securities, a boutique investment firm based in Mill Valley and specializing in convertible bond sales, trading and credit research and strategy.
These acquisitions are part of the industry consolidation that followed in the wake of the recession. The brokerage industry was especially thinned out by the blow, leaving undervalued assets among the survivors—plus a well-culled pool of executive talent.
“We have made several acquisitions over the past 12 months, and we’re still looking for acquisitions where they fit with our company and our culture,” says James Holbrook, president and CEO of Sterne Agee. “But overwhelmingly, our growth is because we’re able to attract talent.”
Holbrook’s connection with Sterne Agee shook out of just such a period of consolidation.
First Birmingham Securities Corp., which Holbrook founded in 1970, was acquired by Sterne Agee in 1990—the last major recession, going back in the economic timeline.
“If you have potential customers available, a good product to sell, and you’re fairly compensated, that’s a good combination,” Holbrook says. “Those are the things that are important to people who work in this industry.”
The firm now employs 1,200 people, and that number continues to grow. With operations in financial centers such as New York, Chicago, and San Francisco, in addition to Birmingham and other Southeastern cities, the firm already has office space and administrative support in place, and continues to add employees to meet customer demand in those areas. Holbrook believes his firm is attractive to investment banker types because it offers availability to potential clients, credibility in the market and competitive compensation.
With new hires and acquisitions come new revenue, and this fiscal year, the firm is on track to make $350 million in revenue. That represents about 20 percent annual growth since 1990, when Holbrook joined the firm and annual revenue was $5 million.
Sterne Agee’s expansion in recent years has been focused more on acquiring new customers rather than adding new services.
“We’re in a broad range of businesses right now,” says Holbrook. “Institutional sales; equity trading and research; private client business; investment banking for municipalities, counties and states; equity capital markets; trust banking; asset management business, and the independent brokerage business. That is probably as broad-based as we’ll be for the next decade or so, but we do intend to expand those segments we’re already working in.”
“The primary type of company that we’re looking to acquire is one that deals with individuals and has a traditional retail brokerage and what we call a private client business,” says Holbrook. “We’re also interested in their geographic position. Outside the Southeast, we’re more inclined to seek companies in larger cities, and potential prospects are Philadelphia, New York, Chicago, Seattle, Los Angeles and Dallas. In the core area of our business, which is the Southeast, we might go into a number of smaller communities.”
Of greater importance than geographic location and even a strong business is the caliber of personnel who work at a potential acquisition. “The quality of the people is really the determining factor,” Holbrook says. “We’re much more interested in finding good quality people who fit into the culture of our business than anything else.”
In addition to mergers and acquisitions, Sterne Agee is growing through strategic alliances. Earlier this year, Sterne Agee announced a partnership with Business Solutions, a subsidiary of the American Bankers Association. Business Solutions selected Sterne Agee Solutions to work with member banks in the areas of balance sheet and income statement analysis and interest rate risk identification. Through partnerships like this, Sterne Agee’s proprietary risk management models assist banks in measuring, assessing and solving for maximum profitability and minimum risk.
How big does the firm plan to get? Holbrook hopes to double the company’s revenue within the next five years and quadruple it by 2021. Much of that growth may occur in New York, the nation’s largest financial center. Sterne Agee recently doubled the size of its New York office space, and it may double its number of New York-based employees to 250 people in coming years. “New York will be our biggest individual office,” Holbrook says. “But the company will remain based in Birmingham as long as I have anything to do with it.”