Macquarie May Seek U.S. Purchases in ‘Once-in-Generation’ Push

March 11 (Bloomberg) -- Macquarie Group Ltd., which made five North American acquisitions in 2009, may buy more U.S. assets and add bankers servicing mid-sized companies to gain a larger slice of the world’s biggest investment-banking market.

Australia’s largest investment bank plans to expand teams advising U.S. energy, industrial and technology companies, said Tim Bishop, chief executive officer of Macquarie Capital’s U.S. division. With A$4.5 billion ($4.1 billion) of excess capital, Macquarie has “eyes and ears open” for opportunities, he said.

Macquarie, started in 1969 with three employees, targeted a market dominated by Wall Street firms after the financial crisis opened what Bishop’s boss, Michael Carapiet, called a “once-in- a-generation” window. The bank aims to carve out a niche selling advise on mergers and stock and bond sales to companies with market value below $5 billion, said Bishop.

“If we are able to build on that sensibly through new hires or acquisitions, then that’s great,” Bishop, 43, said in a phone interview yesterday from New York. “There are a couple of areas we’re not in today in a meaningful enough way.”

Sydney-based Macquarie in September agreed to pay about $146.7 million for Fox-Pitt Kelton Cochran Caronia Waller LLC, an investment bank focusing on financial institutions. Other takeovers were Calgary-based energy advisory Tristone Capital Global Inc.; Constellation Energy Group Inc.’s Houston-based downstream natural gas trading unit; Philadelphia-based asset manager Delaware Investments; and Blackmont Capital, a Toronto wealth-management business.

Model Replication

“When this crisis started, we saw it as a once-in-a- generation opportunity,” Carapiet, global head of Macquarie Capital, said in a March 2 interview in Sydney. “Things we do in the Australasian region, where we are quite a traditional merchant banking operation, we’re trying to replicate wherever sensible in the more established financial markets.”

The U.S. acquisitions are part of a push toward more traditional investment banking by Macquarie Chief Executive Officer Nicholas Moore. He’s shifting away from a model that Macquarie pioneered of buying and pooling assets, listing them on an exchange and charging fees for managing them.

“It’s becoming more of a broker, trader and investment bank,” said Prasad Patkar, who helps manage about $1.6 billion at Platypus Asset Management in Sydney. “It’s overpriced for what they’re evolving into. The multiple that they trade on is fairly high for a portfolio of those kinds of businesses.”

Earnings Multiples

Macquarie has advanced 1.3 percent this year on the Australian stock exchange. The shares closed yesterday at A$49.05, valuing the company at 16 times estimated earnings for the fiscal year to March 31. Goldman Sachs Group Inc., little changed in New York trading in 2010, trades on a multiple of 9.2 forecast full-year profit.

Macquarie has almost 300 bankers in the U.S., including about 40 managing directors who joined since the end of 2008, Bishop said. He declined to say how many more he may add.

“The trend is probably more organically, more around finding the right people to hire,” he said. “To the extent that we can hire those people, we’ll keep picking them up, but we’re not on this crusade to have another 100 people.”

Macquarie Capital, which gives corporate advice, arranges stock and bond sales and manages funds, will drive an almost doubling of annual earnings at the group in the next two years, Bank of America Merrill Lynch said in January. Net income will probably rise 18 percent to A$1.03 billion in the 12 months to March 31 and jump 45 percent the following year, according to the average analyst estimate compiled by Bloomberg.

Staff Retention

To achieve that, Bishop said he’s focused on companies worth less than $5 billion and seeking to grow.

“There really is an opportunity for a traditional investment bank in the U.S. that is focused largely on the mid market, not trying to be everything to everybody, where we think in a relative sense there’s more limited competition.”

Expanding in advisory business has potential pitfalls, said Brett Le Mesurier, lead analyst at Axiome Equities in Sydney.

“Staff retention is the biggest risk,” said Le Mesurier, who recommend investors sell Macquarie stock. “You can’t lock them in until they’re dead. Are you left with the issue that you have to pay them more to keep them?”

Bishop, an Australian who has been in the U.S. for about two years, said there are better opportunities for helping arrange debt and equity financing than for advising on mergers and acquisitions, a market he called “still fairly quiet.”

Brand Recognition

Macquarie has been a book-runner on five debt-capital transactions worth $3.2 billion since December, including the $1.3 billion takeover by Blackstone Group’s Pinnacle Foods Group of Birds Eye Foods Inc., according to the bank.

Those transactions helped Macquarie overcome a lack of brand recognition in the U.S., said Bishop. Back home, Macquarie, named after a 19th-century governor in convict-era Australia, shares its name with streets, a lake, a university and a range of dictionaries.

In the U.S., Macquarie can use its Asian ties to advise on more cross-border transactions such as the June 2008 agreement by South Korea’s LS Cable Ltd. to buy Atlanta-based Superior Essex Inc. for $900 million, Bishop said.

To contact the reporter on this story: Angus Whitley in Sydney at awhitley1@bloomberg.net