NEW YORK ( TheStreet) -- Boutique investment bank Stifel Financial ( SF - Get Report) is buying out specialized financial services brokerage firm KBW ( KBW) for $575 million in a cash and stock deal.

KBW shareholders will receive $17.50 per share, consisting of $10 in cash and $7.50 of Stifel stock. Holders of restricted KBW shares will receive $17.50 of Stifel stock.

Shares of Stifel closed Friday at $31.91. Shares of KBW were up 6.6% in premarket trading.

The combined company provides Stifel with "an exciting opportunity to grow and become a market leader in the financial services sector," Stifel Chairman and CEO Ronald J Kruszewski said in a statement.

Stifel will gain access to $250 million excess capital on KBW's balance sheet upon merger. Annualized net revenues for the two companies are approximately $1.8 billion, based upon 2012 results through September 30, 2012.

"This merger will allow KBW to focus on its strengths in the financial services sector while offering clients a greatly expanded array of products and services through the Stifel platform," Thomas Michaud, president and CEO of KBW, said in a statement.

Stifel was advised by its own subsidiary Stifel Nicolaus. KBW was advised by its wholly-owned subsidiary KBW and BofA Merrill Lynch.

-- Written by Shanthi Bharatwaj in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.