FBR Capital Markets Corp. entered into a definitive agreement to acquire Watch Hill Partners, a boutique corporate finance advisory practice in New York.

Watch Hill Partners will become part of the corporate advisory practice within FBR Capital Markets' newly reorganized investment banking department.

Founded in 2003, Watch Hill Partners has offered mergers and acquisitions and corporate finance advisory services to different clients such as closely held and public companies, financial sponsors and a variety of other sophisticated investor groups.

FBR Capital Markets also announced a reorganization of its Investment Banking department, which will be comprised of three primary practice areas. To complement its existing industry-focused team, the firm is integrating its capital markets group into investment banking and creating a third practice area, corporate advisory services. The reorganization of investment banking into these three areas will create a seamless origination model for FBR Capital Markets' full suite of corporate finance capabilities, covering the firm's new convertible securities, restructuring finance and advisory services as well as credit sales and trading products.

Aside from continuing in his position of executive vice president and head of investment banking, James Neuhauser will now also be chairman of the newly formed investment banking management committee. James Kleeblatt was promoted to vice chairman of FBR Capital Markets & Co. and will continue to lead the equity and debt capital markets functions. David Knowlton will become vice chairman of investment banking and head of the corporate advisory practice.  Kleeblatt and Knowlton will be joined by Kenneth Slosser, senior managing director, group head of financial institutions and Joseph Nardini, senior managing director, group head of diversified industrials as members of the Investment Banking Management Committee.

Terms of the Watch Hill transaction, which is expected to close in the third quarter of 2009, were not disclosed. Watch Hill Partners was represented by Keefe, Bruyette & Woods and Herrick, Feinstein.

"FBR Capital Markets has evolved significantly over the last year as we have made investments to strengthen our franchise and become a leading full-service investment bank serving the middle market," said Richard Hendrix, President and Chief Executive Officer of FBR Capital Markets. "With the Watch Hill team and our newly added resources in research, institutional brokerage and convertible securities along with new capabilities in debt origination, credit sales and trading and restructuring finance and advisory, we are assembling one of the most talented teams and compelling platforms in the industry today. We believe this will benefit our clients as they look to capitalize on the opportunities that the business environment will present over the next several years."

"The investment banking landscape is in the midst of a dramatic evolution," said Knowlton, who is also managing partner of Watch Hill Partners. "And the premium today, as much as ever, is on long-standing relationships, experience through many business cycles and relentless client service. Confidentiality, creativity and being a trusted advisor is of paramount importance, and the integration with FBR Capital Markets will provide clients access to an expanded suite of services. The FBR Capital Markets franchise will become an even more powerful force in focusing on solutions for clients and achieving a broad range of new mandates."

Sandy Robertson, founding partner of Francisco Partners as well as founder and former chairman of Robertson Stephens & Co., said, "Combining the capabilities of FBR Capital Markets and Watch Hill Partners will create a client-focused platform that I believe will be uniquely well-suited for this new era in investment banking."

"The acquisition of Watch Hill Partners and the realignment of our banking practice are significant strategic steps for FBR," said Neuhauser. "With the addition of these experienced and highly-regarded senior M&A and corporate finance professionals, this acquisition deepens our leadership team, broadens our expertise and enhances our presence in New York."

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