Ryan Beck continues to dog its parent company BankAtlantic ( BBX). Shares of BankAtlantic plunged Tuesday, after the Ft. Lauderdale, Fla.-based bank said it was selling its ailing investment banking arm to Stifel Financial ( SF) for a sum considerably less than many on Wall Street had anticipated. The sale of Florham Park, N.J.-based Ryan Beck comes six months after BankAtlantic pulled a planned IPO for the brokerage firm, citing adverse market conditions for its decision. At the time, many on Wall Street predicted the bank would seek a buyer for Ryan Beck in a deal that could fetch up to $300 million. But in selling Ryan Beck to Stifel in an all-stock deal, BankAtlantic is getting about $96 million based on the Monday closing price of Stifel's shares. The deal calls for BankAtlantic to receive 2.53 million of Stifel's common stock. "People thought that the Ryan Beck side of BankAtlantic would bring in more," says Michael O'Boyle, a bank stock trader at First Horizon National's FTN Midwest Research Securities. "The stock price is telling you that Stifel got a better deal than BankAtlantic did." Shares of BankAtlantic were down 53 cents, or 3.9%, to $13.02 in midday trading, while Stifel's stock is up $2.95, or 7.7%, to $41.04. "They probably got a fair price for it," says Joe Fenech, an analyst at Sandler O'Neill. "At the end of the day it's an unprofitable investment bank. It lost money in 2006. It would have been marginally profitable in '04-'05. Marginally profitable investment banks sell at book value."
BankAtlantic, which bought Ryan Beck in 1998, has seen the brokerage post some disappointing numbers the past few years. Despite the market's thumbs-down reaction to the deal, BankAtlantic executives tried to put a positive spin on the transaction. The sale "finally adds clarity to our position as it relates to Ryan Beck," said Alan Levan, BankAtlantic's chairman and CEO. "It gives us a liquid asset on our balance sheet. It combines our current assets, which was not performing as well this year as it had in the past, with a company that has got good strength, a track record of doing transactions like this, a good management team -- the combined company is a powerhouse." Levan acknowledged that while the price was not as high as the market was anticipating, the sale "creates some real opportunity.'' Investors had interpreted the large fees that Ryan Beck garnered from Hudson City Bancorp's ( HCBK) $3.9 billion second-step offering in 2005, one of the top 10 second offerings ever, as a sign that those deals would become the norm, which turned out not to be the case. But when BankAtlantic postponed Ryan Beck's planned $100 million initial public offering, it should have alerted Wall Street that the broker might not fetch much in a sale. Indeed, several other boutique investment banks that went public last year did quite well. Evercore Partners ( EVR), Thomas Wiesel ( TWPG) and Keefe, Bruyette & Woods ( KBW) all performed well on their first days of trading.
The only brokerage IPO to disappoint last year was Cowen Financial ( COWN), which priced shares below its anticipated range. In many ways, what happened to Ryan Beck is similar to the path taken last year by Petrie Parkman, a Denver-based investment firm that specializes in the energy business. In October, Merrill Lynch ( MER) snapped up the investment bank for an undisclosed sum, just a month after the Denver firm filed for an IPO. Some on Wall Street believe Petrie Parkman filed for an IPO mainly to raise its profile and attract bids from potential suitors. In its deal with Stifel, BankAtlantic will also receive five-year warrants to purchase up to another 500,000 shares of Stifel's common stock at an exercise price of $36 a share. At closing, Stifel may choose to substitute up to 150,000 shares for cash. The deal also calls for two "contingent earn-out payments" based on performance and revenues in Ryan Beck's private banking and investment banking businesses. And Stifel has agreed to establish a "retention program" valued at $42 million and will seek shareholder approval to increase the amount of shares available under its shareholder equity plans. It is expected to close later this quarter.