Webster Financial Corp.'s deal to acquire a 65% stake in Duff & Phelps LLC, an independent financial adviser and investment bank, illustrates both the challenges and opportunities smaller banking companies face in the corporate market.

Webster's home state of Connecticut and the Northeast in general have become a battleground for far larger competitors, such as $179 billion-asset FleetBoston Financial Corp., vying for its middle-market corporate base and affluent population.

That trend, in turn, has banking companies such as $11 billion-asset Webster, of Waterbury, looking for ways to broaden their commercial banking capabilities. The Duff & Phelps deal was announced Tuesday.

In the spring $35 billion-asset Sovereign Bancorp of Wyomissing, Pa., set up a capital markets group in New England to help it compete more effectively against Fleet. Sovereign first entered the region this year by buying branches and deposits cast off from Fleet's merger with BankBoston Corp.

It seems even the smallest companies believe they can compete, analysts said. Duff & Phelps would bring Webster more than $20 million of fee-based revenue annually and capabilities that range from middle-market mergers and acquisition advice to private placement of debt and equity, fairness opinions, employee benefits consulting, and specialty financial advisory services.

The deal is scheduled to close by yearend. The price was not disclosed.

James C. Smith, chairman and chief executive officer of Webster, said the companies expect "that the compatibility of our business plans will contribute to revenue growth."

Kevin Timmons, an analyst at First Albany Corp., said the deal would boost the percentage of revenue Webster derives from fee income to 30% from 25%.

Analysts said the deal makes sense. Salvatore DiMartino of Advest Inc. said that even without the presence of much larger competitors, small companies like Webster are being forced to expand their capabilities to survive.

Webster "has been increasing its fee-based businesses and providing a wider array of nonlending products for its customers," Mr. DiMartino said. By bringing additional products for Webster to cross-sell to its middle-market banking customers, the deal would allow the company to retain corporate clients who might have gone elsewhere, he said.

The company said the announced transaction would increase next year's per-share earnings. Webster president William Bromage said the banking company would not incur a charge as a result of the deal.

This is "another step for Webster in becoming more commercial bank like," Mr. Bromage said. "We have enjoyed a relationship" with Duff & Phelps "for some time," and the companies have done some transactions together, he said.

Webster, a thrift company, has been expanding beyond mortgage lending and now offers consumer banking, mortgage insurance, and trust and investment services as well. Mr. Timmons said that, when combined with Duff & Phelps' services, Webster would have a product line similar to what investment banks provide.

Duff & Phelps was founded in 1932 and eventually developed credit rating and investment management subsidiaries, which have since split from the company. Duff & Phelps Credit Rating Co. was acquired by Fitch IBCA, and Phoenix Investment Partners now operates as a separate company.

Duff & Phelps LLC, which has offices in New York, Los Angeles, and Raleigh-Durham, N.C., and 90 staff members, would retain its name in the deal.

Webster has been acquiring smaller Connecticut banks, particularly in the southern parts of the state. But while it may expand into neighboring states, analysts said they did not expect the company to go on a nationwide acquisition binge.

"I don't see this as a precedent," Mr. Timmons said. The merger is about acquiring "smart people who provide services that companies need," no matter where they are located, he said.

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