Timing is everything and times certainly change quickly, as Macquarie Bank has reminded us in the past couple of days. Just a few months ago, Macquarie’s many detractors were sneering at the Australian investment bank’s various troubles – a big toll road project going wobbly, escalating rows with a hostile media, a sagging share price and a lot of shine coming off its rapidly dwindling profits
But in the past few weeks, Macquarie has come roaring back – first, by furthering its concerted push into the global resources and energy advisory business with the C$116m ($104m) acquisition of Canadian advisory and corporate finance boutique Tristone Capital.
This week, Macquarie easily raised A$1.2bn ($983m) from institutional and retail shareholders – in the strongest sign yet of renewed confidence in the bank once dubbed “the millionaires’ factory”. Its shares rose this week after Monday’s equity raising above A$37 – well over double their 10-year low of A$15.75 reached in March.
Now, it appears, Macquarie has come from nowhere to gobble up more than its share of Asian IPOs. Reuters reports on Thursday that Macquarie, until last year “all-but-invisible in the Asian market”, is now involved in a spate of new listings in Hong Kong.
In addition to arranging several IPOs of Chinese companies, Macquarie is among the banks being considered to handle the listing of AIA, the Asian life insurance group of AIG that is seeking to raise around $4bn, the report adds.
Macquarie’s quick rise from virtually nowhere in the Asia IPO scene could be attributed by rivals to a few lucky breaks in a previously dead market that’s just coming back to life, says Reuters.
But analysts, people close to the bank and even some rivals say Macquarie’s market share grab isn’t a fluke. The bank began its equity capital markets build-out in 2004 through a deal with Dutch financial group ING…It has since aggressively expanded the ECM business, hiring several hundred people, building an international distribution network critical to syndicating equity offerings and establishing a large fleet of research analysts.
This week’s capital-raising, it seems, has set the stage for more wheeling and dealing out of Macquarie’s towering, shiny headquarters in Sydney’s Martin Place.
After raising A$540m through the institutional placement at $27 a share (announced May 1), Macquarie received a further A$669m from retail shareholders who had flooded the bank with more than 50,000 applications for its share purchase plan. Those investors were duly rewarded, acquiring Macquarie shares at A$26.60 on Monday as Macquarie traded just above $37.
As BusinessSpectator’s Stephen Bartholomeusz noted:
Three months ago, Macquarie Group was being attacked by the market. Its share price had plunged below $16 amidst speculation that it would make a capital raising. The group held on and then took advantage of the sharp market rebound to raise more capital on better terms than it could have conceived of during the darker days of March.
Even after its $104m purchase of Canada’s Tristone, Macquarie now has a capital buffer of about A$4.3bn over its minimum capital requirements and has added further to its A$30bn of cash and liquid assets, he notes, adding: “In a sector where its peers’ balance sheets are strained, it stands out”.
One reason for the sharp recovery in Macquarie’s share price is due to the overall market recovery and the general sense (at least in Australia) that the worst of the financial crisis is over, notes Bartholomeusz. Of course, he adds, “the capital raising, which addressed any reservations about the quality of Macquarie’s balance sheet, would also have played its part”. He continues:Perhaps of greater consequence, however, may have been the sense of direction that [CEO] Nicholas Moore provided when he articulated his strategy for the bank in presentations accompanying the release of the group’s results last month, emphasising the growth that had occurred beyond the listed infrastructure model and Macquarie’s across-the-board plans for global but incremental growth.
That strategy, which would take advantage of the distractions and stress being experienced by Macquarie’s global peers, was given some substance by last week’s acquisition of a Canadian energy advisory form, Tristone, on quite advantageous terms. That deal followed the purchase earlier this year of Constellation Energy’s gas trading activities and staff in the US.
It was a demonstration that the group can grow its advisory, capital markets, commodity financing and securities businesses and develop large presences in attractive global niches through relatively low-risk expansion.
Sure, he adds, Macquarie Group still has some “legacy issues” to deal with, in terms of its listed satellite funds, “but the market’s gaze appears to be shifting from them to the core group and its improving prospects”.
Indeed, noted The Australian’s business columnist, John Durie, Macquarie’s Tristone deal could signal an important new phase for Macquarie – almost like Enron charmed earlier years, although presumably without the problems, legal and otherwise.
Macquarie “started working the infrastructure space” back in the mid-1990s, notes Durie, picking up skills in toll roads and the like, and it is now doing the same in the energy field, in the hope that it will prove to be as lucrative.
The deal for Tristone follows the recent purchase of US-based energy trader Constellation Energy and the acquisition two years ago of Canadian broker Orion Finance. Says Durie:As much as Macquarie is seen as suffering from the financial crisis, the reality is that, compared to some US majors, it is in great shape and, all of a sudden, deals like this one are possible without Macquarie being forced into an expensive bidding war.
Macquarie is now a full energy-service provider, a little like Enron once was, but, hopefully, with a better future that covers everything from electricity trading to hedging, acquisitions and advisory work and, of course, with an end-game around re-packaging assets in unlisted funds.
After all, he concludes, “energy is a scarce commodity, just as toll roads are natural monopolies, so the characteristics offer the perfect vehicle for Macquarie to clip the ticket from every angle”.
Lex, while it has voiced concerns in the past about the solidity of Macquarie’s balance sheet, nevertheless had the perfect measure of Macquarie back in February when it noted:
Never take on Nicholas Moore at Monopoly. By the time you select the dog or the boot, the Macquarie Group chief will have been round the board four times, picking up Chance cards, snatching fistfuls of deeds.
Related links:
Macquarie Group raises A$1.2bn – FT
Macquarie’s stars align – BusinessSpectator
Australia’s Macquarie grabbing share of Asian IPOs – Reuters
Macquarie confounds critics - FT
Macquarie in a Brisconnections mess – FT Alphaville
More about Mac Bank – and this time you don’t need a PhD – FT Alphaville